Orient Electric (NSE:ORIENTELEC) Will Pay A Dividend Of ₹0.75

Orient Electric Limited's (NSE:ORIENTELEC) investors are due to receive a payment of ₹0.75 per share on 2nd of March. Based on this payment, the dividend yield on the company's stock will be 0.7%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Orient Electric

Orient Electric's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Orient Electric's earnings easily covered the dividend, but free cash flows were negative. 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 is forecast to expand by 138.3%. 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. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2018, the annual payment back then was ₹1.00, compared to the most recent full-year payment of ₹1.50. This means that it has been growing its distributions at 7.0% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 2.1% per year. While EPS growth is quite low, Orient Electric has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Orient Electric that investors need to be conscious of moving forward. Is Orient Electric not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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