AuSom Enterprise (NSE:AUSOMENT) Has Announced That Its Dividend Will Be Reduced To ₹0.50

AuSom Enterprise Limited (NSE:AUSOMENT) is reducing its dividend from last year's comparable payment to ₹0.50 on the 29th of October. This means the annual payment is 0.6% of the current stock price, which is above the average for the industry.

View our latest analysis for AuSom Enterprise

AuSom Enterprise's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, AuSom Enterprise's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Unless the company can turn things around, EPS could fall by 26.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 21%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

AuSom Enterprise's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The most recent annual payment of ₹0.50 is about the same as the annual payment 3 years ago. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

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. AuSom Enterprise's earnings per share has shrunk at 26% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

AuSom Enterprise's Dividend Doesn't Look Sustainable

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 AuSom Enterprise is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 6 warning signs for AuSom Enterprise (2 shouldn't be ignored!) that you should be aware of before investing. Is AuSom Enterprise not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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