Read This Before Considering Siyaram Silk Mills Limited (NSE:SIYSIL) For Its Upcoming ₹5.00 Dividend
Readers hoping to buy Siyaram Silk Mills Limited (NSE:SIYSIL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Siyaram Silk Mills' shares before the 24th of July in order to be eligible for the dividend, which will be paid on the 31st of August.
The company's next dividend payment will be ₹5.00 per share, on the back of last year when the company paid a total of ₹12.00 to shareholders. Calculating the last year's worth of payments shows that Siyaram Silk Mills has a trailing yield of 1.9% on the current share price of ₹631.45. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Siyaram Silk Mills has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Siyaram Silk Mills has a low and conservative payout ratio of just 24% of its income after tax. A useful secondary check can be to evaluate whether Siyaram Silk Mills generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 302% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Siyaram Silk Mills is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
While Siyaram Silk Mills's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Siyaram Silk Mills to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Check out our latest analysis for Siyaram Silk Mills
Click here to see how much of its profit Siyaram Silk Mills paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Siyaram Silk Mills's earnings have been skyrocketing, up 132% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Siyaram Silk Mills has lifted its dividend by approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Final Takeaway
Is Siyaram Silk Mills an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Siyaram Silk Mills today.
On that note, you'll want to research what risks Siyaram Silk Mills is facing. Our analysis shows 1 warning sign for Siyaram Silk Mills and you should be aware of it before buying any 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.