Snowman Logistics' (NSE:SNOWMAN) Dividend Will Be Increased To ₹1.00

The board of Snowman Logistics Limited (NSE:SNOWMAN) has announced that it will be paying its dividend of ₹1.00 on the 31st of August, an increased payment from last year's comparable dividend. This takes the dividend yield to 2.0%, which shareholders will be pleased with.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Snowman Logistics' stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Snowman Logistics

Snowman Logistics' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Snowman Logistics' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

EPS is set to grow by 37.2% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 87%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Snowman Logistics' Dividend Has Lacked Consistency

It's comforting to see that Snowman Logistics has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ₹0.50 in 2015 to the most recent total annual payment of ₹1.00. This means that it has been growing its distributions at 9.1% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Snowman Logistics might have put its house in order since then, but we remain cautious.

Snowman Logistics' Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Snowman Logistics has grown earnings per share at 37% per year over the past five years. While EPS is growing rapidly, Snowman Logistics paid out a very high 112% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Snowman Logistics' payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Snowman Logistics has 2 warning signs (and 1 which is significant) 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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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.