Uttam Sugar Mills Limited (NSE:UTTAMSUGAR) Passed Our Checks, And It's About To Pay A ₹2.50 Dividend
Uttam Sugar Mills Limited (NSE:UTTAMSUGAR) is about to trade ex-dividend in the next 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Uttam Sugar Mills investors that purchase the stock on or after the 11th of September will not receive the dividend, which will be paid on the 17th of October.
The company's next dividend payment will be ₹2.50 per share, on the back of last year when the company paid a total of ₹2.50 to shareholders. Based on the last year's worth of payments, Uttam Sugar Mills has a trailing yield of 0.9% on the current stock price of ₹281.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Uttam Sugar Mills has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Uttam Sugar Mills is paying out just 9.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Uttam Sugar Mills generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.8% of its cash flow 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.
Check out our latest analysis for Uttam Sugar Mills
Click here to see how much of its profit Uttam Sugar Mills paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Uttam Sugar Mills, with earnings per share up 7.8% on average over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past four years, Uttam Sugar Mills has increased its dividend at approximately 5.7% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Uttam Sugar Mills worth buying for its dividend? Earnings per share growth has been growing somewhat, and Uttam Sugar Mills is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Uttam Sugar Mills is halfway there. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Uttam Sugar Mills is facing. For example, we've found 2 warning signs for Uttam Sugar Mills (1 doesn't sit too well with us!) that deserve your attention before investing in the shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.