Swelect Energy Systems' (NSE:SWELECTES) Shareholders Will Receive A Smaller Dividend Than Last Year

Swelect Energy Systems Limited (NSE:SWELECTES) has announced that on 10th of August, it will be paying a dividend of₹1.20, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 0.4%, which is lower than the average for the industry.

See our latest analysis for Swelect Energy Systems

Swelect Energy Systems' Payment Has Solid Earnings Coverage

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, 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 8.6% 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 7.0%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from ₹80.00 total annually to ₹1.20. The dividend has fallen 99% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

We Could See Swelect Energy Systems' Dividend Growing

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. Swelect Energy Systems has seen EPS rising for the last five years, at 8.6% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Swelect Energy Systems is earning enough to cover the payments, the cash flows are lacking. We don't think Swelect Energy Systems is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Swelect Energy Systems that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.