Interested In Siyaram Silk Mills’ (NSE:SIYSIL) Upcoming ₹3.00 Dividend? You Have Three Days Left

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 usually set to be one business day before the record date which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Siyaram Silk Mills’ shares before the 6th of February to receive the dividend, which will be paid on the 27th of February.

The company’s next dividend payment will be ₹3.00 per share. Last year, in total, the company distributed ₹10.20 to shareholders. Looking at the last 12 months of distributions, Siyaram Silk Mills has a trailing yield of approximately 2.0% on its current stock price of ₹511.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Siyaram Silk Mills

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Siyaram Silk Mills is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 337% 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.

Siyaram Silk Mills paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the 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.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That’s why it’s comforting to see Siyaram Silk Mills’s earnings have been skyrocketing, up 22% 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. In the past 10 years, Siyaram Silk Mills has increased its dividend at approximately 21% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Siyaram Silk Mills worth buying for its dividend? We like that Siyaram Silk Mills has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it’s hard to get excited about Siyaram Silk Mills from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we’ve found 1 warning sign for Siyaram Silk Mills that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.