Hi-Tech Gears' (NSE:HITECHGEAR) Shareholders Will Receive A Smaller Dividend Than Last Year

The Hi-Tech Gears Limited's (NSE:HITECHGEAR) dividend is being reduced from last year's payment covering the same period to ₹1.50 on the 29th of October. The dividend yield will be in the average range for the industry at 0.7%.

Check out our latest analysis for Hi-Tech Gears

Hi-Tech Gears' Distributions May Be Difficult To Sustain

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Even though Hi-Tech Gears is not generating a profit, it is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Looking forward, earnings per share could 27.7% over the next year if the trend of the last few years can't be broken. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ₹4.00 in 2012, and the most recent fiscal year payment was ₹1.50. Doing the maths, this is a decline of about 9.3% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Hi-Tech Gears' earnings per share has shrunk at 28% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

We're Not Big Fans Of Hi-Tech Gears' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Hi-Tech Gears you should be aware of, and 3 of them are potentially serious. Is Hi-Tech Gears not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.