Sobha (NSE:SOBHA) Is Paying Out A Dividend Of ₹3.00

The board of Sobha Limited (NSE:SOBHA) has announced that it will pay a dividend on the 7th of September, with investors receiving ₹3.00 per share. This payment means that the dividend yield will be 0.5%, which is around the industry average.

View our latest analysis for Sobha

Sobha's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, Sobha's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 5.0%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ₹5.00 in 2013 to the most recent total annual payment of ₹3.00. Doing the maths, this is a decline of about 5.0% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been sinking by 13% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On Sobha's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Sobha's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Sobha has 2 warning signs (and 1 which is potentially serious) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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