In This Article:
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Sutlej Textiles and Industries Limited (NSE:SUTLEJTEX) is about to go ex-dividend in just 3 days. You can purchase shares before the 20th of August in order to receive the dividend, which the company will pay on the 21st of September.
Sutlej Textiles and Industries's next dividend payment will be ₹0.65 per share, and in the last 12 months, the company paid a total of ₹0.65 per share. Based on the last year's worth of payments, Sutlej Textiles and Industries stock has a trailing yield of around 2.3% on the current share price of ₹28.35. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sutlej Textiles and Industries can afford its dividend, and if the dividend could grow.
View our latest analysis for Sutlej Textiles and Industries
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sutlej Textiles and Industries has a low and conservative payout ratio of just 18% of its income after tax. A useful secondary check can be to evaluate whether Sutlej Textiles and Industries generated enough free cash flow to afford its dividend. The good news is it paid out just 14% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Sutlej Textiles and Industries paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Sutlej Textiles and Industries's 15% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Sutlej Textiles and Industries has lifted its dividend by approximately 26% a year on average.
The Bottom Line
From a dividend perspective, should investors buy or avoid Sutlej Textiles and Industries? Sutlej Textiles and Industries has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, it's hard to get excited about Sutlej Textiles and Industries from a dividend perspective.