20 Microns' (NSE:20MICRONS) Dividend Will Be ₹1.25

20 Microns Limited (NSE:20MICRONS) has announced that it will pay a dividend of ₹1.25 per share on the 7th of September. Including this payment, the dividend yield on the stock will be 0.5%, which is a modest boost for shareholders' returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that 20 Microns' stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Our free stock report includes 2 warning signs investors should be aware of before investing in 20 Microns. Read for free now.

20 Microns' Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. 20 Microns is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 20.9% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 6.7%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for 20 Microns

20 Microns' Dividend Has Lacked Consistency

20 Microns has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2017, the dividend has gone from ₹0.80 total annually to ₹1.25. This means that it has been growing its distributions at 5.7% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. 20 Microns might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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. 20 Microns has seen EPS rising for the last five years, at 21% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On 20 Microns' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While 20 Microns is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 20 Microns (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is 20 Microns not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.