Apollo Micro Systems' (NSE:APOLLO) Dividend Is Being Reduced To ₹0.25

Apollo Micro Systems Limited (NSE:APOLLO) is reducing its dividend to ₹0.25 on the 24th of October. This means that the annual payment is 0.2% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Apollo Micro Systems

Apollo Micro Systems' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Apollo Micro Systems was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Unless the company can turn things around, EPS could fall by 7.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 5.5%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Apollo Micro Systems' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2018, the dividend has gone from ₹1.00 to ₹0.25. Dividend payments have fallen sharply, down 75% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

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. Over the past five years, it looks as though Apollo Micro Systems' EPS has declined at around 7.5% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Apollo Micro Systems' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Apollo Micro Systems (of which 1 shouldn't be ignored!) you should know about. We have also put together a list of global stocks with a solid dividend.

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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.
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