Adacel Technologies (ASX:ADA) Has Announced That Its Dividend Will Be Reduced To $0.015

Adacel Technologies Limited (ASX:ADA) has announced that on 26th of April, it will be paying a dividend of$0.015, which a reduction from last year's comparable dividend. The yield is still above the industry average at 8.9%.

View our latest analysis for Adacel Technologies

Adacel Technologies Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Adacel Technologies was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. This is a pretty unsustainable practice, and could be risky if continued for the long term.

If the company can't turn things around, EPS could fall by 17.8% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 188%, which is definitely a bit high to be sustainable going forward.

Adacel Technologies' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was $0.0107, compared to the most recent full-year payment of $0.0372. This means that it has been growing its distributions at 17% per annum over that time. Adacel Technologies has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Adacel Technologies' earnings per share has shrunk at 18% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Adacel Technologies' Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 5 warning signs for Adacel Technologies (of which 3 are significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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