Salzer Electronics' (NSE:SALZERELEC) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Salzer Electronics Limited (NSE:SALZERELEC) has announced that it will be increasing its dividend by 14% on the 14th of October to ₹2.50, up from last year's comparable payment of ₹2.20. Despite this raise, the dividend yield of 0.3% is only a modest boost to shareholder returns.

Check out our latest analysis for Salzer Electronics

Salzer Electronics' Earnings Easily Cover The Distributions

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, Salzer Electronics was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share could rise by 12.6% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 10%, 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. The annual payment during the last 10 years was ₹1.20 in 2014, and the most recent fiscal year payment was ₹2.20. This means that it has been growing its distributions at 6.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Salzer Electronics might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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. Salzer Electronics has seen EPS rising for the last five years, at 13% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Salzer Electronics' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Salzer Electronics is earning enough to cover the payments, the cash flows are lacking. We don't think Salzer Electronics is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Salzer Electronics you should be aware of, and 1 of them is a bit concerning. 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.

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