Astra Microwave Products' (NSE:ASTRAMICRO) Upcoming Dividend Will Be Larger Than Last Year's

Astra Microwave Products Limited (NSE:ASTRAMICRO) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of September to ₹1.60. Even though the dividend went up, the yield is still quite low at only 0.4%.

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 Astra Microwave Products' stock price has increased by 38% 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 Astra Microwave Products

Astra Microwave Products' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Astra Microwave Products' earnings easily covered the dividend, but free cash flows were negative. 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.

The next year is set to see EPS grow by 168.1%. If the dividend continues on this path, the payout ratio could be 8.4% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ₹0.70 total annually to ₹1.60. This means that it has been growing its distributions at 8.6% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

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. However, Astra Microwave Products' EPS was effectively flat over the past five years, which could stop the company from paying more every year. While EPS growth is quite low, Astra Microwave Products has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Astra Microwave Products' Dividend

Overall, we always like to see the dividend being raised, but we don't think Astra Microwave Products will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Astra Microwave Products is a great stock to add to your portfolio if income is your focus.

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. Taking the debate a bit further, we've identified 2 warning signs for Astra Microwave Products that investors need to be conscious of moving forward. Is Astra Microwave Products not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.