Automotive Axles (NSE:AUTOAXLES) Is Increasing Its Dividend To ₹4.50

The board of Automotive Axles Limited (NSE:AUTOAXLES) has announced that it will be increasing its dividend on the 9th of September to ₹4.50. Although the dividend is now higher, the yield is only 0.3%, which is below the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Automotive Axles' stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Automotive Axles

Automotive Axles' Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Automotive Axles' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, EPS could fall by 8.2% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 33%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was ₹8.50, compared to the most recent full-year payment of ₹4.50. Doing the maths, this is a decline of about 6.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Is Doubtful

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Automotive Axles has seen earnings per share falling at 8.2% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Automotive Axles' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Automotive Axles (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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