Astra Microwave Products (NSE:ASTRAMICRO) Will Pay A Larger Dividend Than Last Year At ₹1.60

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. Although the dividend is now higher, the yield is only 0.4%, which is below the industry average.

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. Astra Microwave Products 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.

The next year is set to see EPS grow by 168.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 8.4% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹0.80 in 2013, and the most recent fiscal year payment was ₹1.60. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year 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. Astra Microwave Products might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Astra Microwave Products' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

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 Astra Microwave Products 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. 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. If you are a dividend investor, you might also want to look at our curated list of high yield 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.