Are Dividend Investors Making A Mistake With 63 moons technologies limited (NSE:FINANTECH)?

Today we'll take a closer look at 63 moons technologies limited (NSE:FINANTECH) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A slim 2.5% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, 63 moons technologies could have potential. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

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Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. While 63 moons technologies pays a dividend, it reported a loss over the last year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

With a strong net cash balance, 63 moons technologies investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on 63 moons technologies' financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of 63 moons technologies' dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was ₹8.0 in 2011, compared to ₹2.0 last year. This works out to a decline of approximately 75% over that time.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

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. 63 moons technologies' earnings per share have shrunk at 100% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and 63 moons technologies' earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that 63 moons technologies' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with it paying a dividend while reporting a loss over the past year. Earnings per share are down, and 63 moons technologies' dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think 63 moons technologies may not be an ideal dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come accross 3 warning signs for 63 moons technologies you should be aware of, and 1 of them is a bit concerning.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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This article by Simply Wall St is general in nature. 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.
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