Action Construction Equipment (NSE:ACE) Is Paying Out A Dividend Of ₹2.00

The board of Action Construction Equipment Limited (NSE:ACE) has announced that it will pay a dividend of ₹2.00 per share on the 28th of September. Including this payment, the dividend yield on the stock will be 0.2%, which is a modest boost for shareholders' returns.

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Action Construction Equipment's Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Action Construction Equipment was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 23.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 5.8%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Action Construction Equipment

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹0.20 in 2015, and the most recent fiscal year payment was ₹2.00. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. Action Construction Equipment 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Action Construction Equipment has impressed us by growing EPS at 50% per year over the past five years. 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.

We Really Like Action Construction Equipment's Dividend

Overall, we like to see the dividend staying consistent, and we think Action Construction Equipment might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For example, we've picked out 1 warning sign for Action Construction Equipment that investors should know about before committing capital to this stock. 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.