Aartech Solonics (NSE:AARTECH) Will Pay A Smaller Dividend Than Last Year

Aartech Solonics Limited (NSE:AARTECH) has announced that on 30th of October, it will be paying a dividend of₹0.125, which a reduction from last year's comparable dividend. This payment takes the dividend yield to 0.1%, which only provides a modest boost to overall returns.

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Aartech Solonics' Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Aartech Solonics' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 37.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 11% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Aartech Solonics

Aartech Solonics' Dividend Has Lacked Consistency

Aartech Solonics has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ₹0.111 in 2020 to the most recent total annual payment of ₹0.0833. This works out to be a decline of approximately 5.6% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

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. Aartech Solonics has seen EPS rising for the last five years, at 37% 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.

Our Thoughts On Aartech Solonics' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Aartech Solonics is a great stock to add to your portfolio if income is your focus.

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 instance, we've picked out 3 warning signs for Aartech Solonics that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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