Newgen Software Technologies' (NSE:NEWGEN) Upcoming Dividend Will Be Larger Than Last Year's

By
Simply Wall St
Published
May 27, 2021
NSEI:NEWGEN
Source: Shutterstock

The board of Newgen Software Technologies Limited (NSE:NEWGEN) has announced that it will be increasing its dividend on the 26th of August to ₹3.50. Even though the dividend went up, the yield is still quite low at only 0.8%.

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 Newgen Software Technologies' stock price has increased by 42% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Newgen Software Technologies

Newgen Software Technologies' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Newgen Software Technologies' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 8.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
NSEI:NEWGEN Historic Dividend May 28th 2021

Newgen Software Technologies' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2018, the dividend has gone from ₹2.00 to ₹3.50. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Newgen Software Technologies has grown earnings per share at 28% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Newgen Software Technologies' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Newgen Software Technologies that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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