NDR Auto Components (NSE:NDRAUTO) Will Pay A Dividend Of ₹3.75

The board of NDR Auto Components Limited (NSE:NDRAUTO) has announced that it will pay a dividend of ₹3.75 per share on the 21st of August. Including this payment, the dividend yield on the stock will be 0.3%, which is a modest boost for shareholders' returns.

View our latest analysis for NDR Auto Components

NDR Auto Components' Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, NDR Auto Components was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 36.4% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 8.4%, which is in the range that makes us comfortable with the sustainability of the dividend.

NDR Auto Components Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. The dividend has gone from an annual total of ₹0.50 in 2021 to the most recent total annual payment of ₹2.50. This works out to be a compound annual growth rate (CAGR) of approximately 71% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. NDR Auto Components has seen EPS rising for the last five years, at 36% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about NDR Auto Components' payments, as there could be some issues with sustaining them into the future. While NDR Auto Components is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for NDR Auto Components (1 is significant!) 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.