Swelect Energy Systems (NSE:SWELECTES) Is Paying Out A Larger Dividend Than Last Year

Swelect Energy Systems Limited's (NSE:SWELECTES) dividend will be increasing from last year's payment of the same period to ₹4.00 on 9th of August. Despite this raise, the dividend yield of 0.3% is only a modest boost to shareholder returns.

See our latest analysis for Swelect Energy Systems

Swelect Energy Systems' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Swelect Energy Systems 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.

Over the next year, EPS could expand by 50.4% if recent trends continue. If the dividend continues on this path, the payout ratio could be 7.2% by next year, which we think can be pretty sustainable going forward.

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 2014, the annual payment back then was ₹85.33, compared to the most recent full-year payment of ₹3.00. The dividend has fallen 96% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Swelect Energy Systems has grown earnings per share at 50% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Swelect Energy Systems' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Swelect Energy Systems that you should be aware of before investing. Is Swelect Energy Systems 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.