Divgi TorqTransfer Systems' (NSE:DIVGIITTS) Dividend Will Be Reduced To ₹2.60

Divgi TorqTransfer Systems Limited (NSE:DIVGIITTS) has announced that on 28th of August, it will be paying a dividend of₹2.60, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 0.4%, which is lower than the average for the industry.

See our latest analysis for Divgi TorqTransfer Systems

Divgi TorqTransfer Systems' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Divgi TorqTransfer Systems was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 102.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 8.1%, which is in the range that makes us comfortable with the sustainability of the dividend.

Divgi TorqTransfer Systems Doesn't Have A Long Payment History

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth Is Doubtful

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. In the last five years, Divgi TorqTransfer Systems' earnings per share has shrunk at approximately 6.6% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Divgi TorqTransfer Systems' Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've identified 2 warning signs for Divgi TorqTransfer Systems (1 is concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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