Precision Wires India (NSE:PRECWIRE) Is Reducing Its Dividend To ₹0.36

Precision Wires India Limited (NSE:PRECWIRE) has announced that on 4th of October, it will be paying a dividend of₹0.36, which a reduction from last year's comparable dividend. However, the dividend yield of 1.0% is still a decent boost to shareholder returns.

View our latest analysis for Precision Wires India

Precision Wires India's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, Precision Wires India's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 8.4% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was ₹0.247, compared to the most recent full-year payment of ₹0.86. This means that it has been growing its distributions at 13% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Precision Wires India has seen EPS rising for the last five years, at 8.4% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Precision Wires India Looks Like A Great Dividend Stock

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Precision Wires India does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

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 2 warning signs for Precision Wires India 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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