Sobha (NSE:SOBHA) Will Pay A Smaller Dividend Than Last Year

Sobha Limited (NSE:SOBHA) is reducing its dividend from last year's comparable payment to ₹3.00 on the 8th of September. This means that the dividend yield is 0.4%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for Sobha

Sobha's Earnings Easily Cover the Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. However, Sobha's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 5.3%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ₹5.00 in 2012 to the most recent total annual payment of ₹3.00. The dividend has shrunk at around 5.0% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's not great to see that Sobha's earnings per share has fallen at approximately 5.8% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Sobha's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Sobha you should be aware of, and 1 of them is concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.