Talbros Automotive Components (NSE:TALBROAUTO) Is Paying Out Less In Dividends Than Last Year

Talbros Automotive Components Limited (NSE:TALBROAUTO) has announced it will be reducing its dividend payable on the 26th of October to ₹1.50, which is 25% lower than what investors received last year. However, the dividend yield of 0.6% still remains in a typical range for the industry.

View our latest analysis for Talbros Automotive Components

Talbros Automotive Components' Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, Talbros Automotive Components' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 29.7% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 5.7%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was ₹1.20, compared to the most recent full-year payment of ₹3.00. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

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 Talbros Automotive Components has been growing its earnings per share at 30% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Talbros Automotive Components' Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Talbros Automotive Components has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Talbros Automotive Components that investors should know about before committing capital to this stock. Is Talbros Automotive Components not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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