Divgi TorqTransfer Systems (NSE:DIVGIITTS) Has Announced That Its 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. This means that the annual payment is 0.4% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Divgi TorqTransfer Systems

Divgi TorqTransfer Systems' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Divgi TorqTransfer Systems was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 102.6%. If the dividend continues on this path, the payout ratio could be 8.1% by next year, which we think can be pretty sustainable going forward.

Divgi TorqTransfer Systems Doesn't Have A Long Payment History

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend 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 May Be Hard To Come By

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. Divgi TorqTransfer Systems has seen earnings per share falling at 6.6% per year over the last five years. 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Divgi TorqTransfer Systems' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Divgi TorqTransfer Systems is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Divgi TorqTransfer Systems (1 can't be ignored!) that you should be aware of before investing. Is Divgi TorqTransfer Systems not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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