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

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

View 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.

Looking forward, earnings per share could rise by 50.4% over the next year if the trend from the last few years continues. 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

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from ₹6.00 total annually to ₹3.00. This works out to be a decline of approximately 6.7% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

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. It's encouraging to see that Swelect Energy Systems has been growing its earnings per share at 50% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Swelect Energy Systems' Dividend

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 Swelect Energy Systems is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. For example, we've identified 3 warning signs for Swelect Energy Systems (1 is significant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com