Onward Technologies (NSE:ONWARDTEC) Is Due To Pay A Dividend Of ₹3.00

Onward Technologies Limited's (NSE:ONWARDTEC) investors are due to receive a payment of ₹3.00 per share on 16th of August. The dividend yield is 0.6% based on this payment, which is a little bit low compared to the other companies in the industry.

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 Onward Technologies' stock price has increased by 62% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Onward Technologies

Onward Technologies' Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Onward Technologies' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

If the trend of the last few years continues, EPS will grow by 3.3% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 69% by next year, which is in a pretty sustainable range.

Onward Technologies Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 7 years was ₹1.00 in 2016, and the most recent fiscal year payment was ₹3.00. This means that it has been growing its distributions at 17% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown at around 3.3% a year for the past five years, which isn't massive but still better than seeing them shrink. 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. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Onward Technologies' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 4 warning signs for Onward Technologies that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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