Orient Electric (NSE:ORIENTELEC) Has Announced A Dividend Of ₹0.75

The board of Orient Electric Limited (NSE:ORIENTELEC) has announced that it will pay a dividend on the 31st of August, with investors receiving ₹0.75 per share. This means that the annual payment will be 0.6% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Orient Electric

Orient Electric's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Orient Electric was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 171.4%. If the dividend continues on this path, the payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.

Orient Electric's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ₹1.00 in 2018 to the most recent total annual payment of ₹1.50. This means that it has been growing its distributions at 7.0% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Orient Electric May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Orient Electric hasn't seen much change in its earnings per share over the last five years. Growth of 1.6% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Orient Electric's payments, as there could be some issues with sustaining them into the future. While Orient Electric is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Orient Electric (1 can't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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