Salzer Electronics (NSE:SALZERELEC) Has Announced That It Will Be Increasing Its Dividend To ₹1.80

Salzer Electronics Limited (NSE:SALZERELEC) has announced that it will be increasing its dividend from last year's comparable payment on the 10th of October to ₹1.80. This makes the dividend yield 1.0%, which is above the industry average.

Check out our latest analysis for Salzer Electronics

Salzer Electronics' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Salzer Electronics' 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 2.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the annual payment back then was ₹1.20, compared to the most recent full-year payment of ₹1.80. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Achieve

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. However, Salzer Electronics has only grown its earnings per share at 2.4% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Salzer Electronics' Dividend

Overall, we always like to see the dividend being raised, but we don't think Salzer Electronics will make a great income stock. While Salzer Electronics is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. Case in point: We've spotted 3 warning signs for Salzer Electronics (of which 1 shouldn't be ignored!) you should know about. Is Salzer Electronics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.