Orient Electric's (NSE:ORIENTELEC) Dividend Is Being Reduced To ₹0.75

Orient Electric Limited (NSE:ORIENTELEC) has announced that on 1st of September, it will be paying a dividend of₹0.75, which a reduction from last year's comparable dividend. 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.

View our latest analysis for Orient Electric

Orient Electric's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. The last dividend was quite easily covered by Orient Electric's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 178.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

Orient Electric's Dividend Has Lacked Consistency

Looking back, Orient Electric's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2018, the dividend has gone from ₹1.00 total annually to ₹1.50. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration. 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings has been rising at 3.3% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 3.3% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, we think that Orient Electric could make a reasonable income stock, even though it did cut the dividend this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs 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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