G N A Axles' (NSE:GNA) Dividend Will Be Reduced To ₹2.00

G N A Axles Limited (NSE:GNA) is reducing its dividend from last year's comparable payment to ₹2.00 on the 19th of October. Based on this payment, the dividend yield will be 0.5%, which is lower than the average for the industry.

See our latest analysis for G N A Axles

G N A Axles' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, G N A Axles was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 88% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Looking forward, earnings per share is forecast to rise by 22.3% over the next year. If the dividend continues on this path, the payout ratio could be 8.5% by next year, which we think can be pretty sustainable going forward.

G N A Axles' Dividend Has Lacked Consistency

Looking back, G N A Axles' dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of ₹1.00 in 2018 to the most recent total annual payment of ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. G N A Axles 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.

G N A Axles Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that G N A Axles has been growing its earnings per share at 6.2% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments G N A Axles has been making. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for G N A Axles 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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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.

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