Genus Power Infrastructures (NSE:GENUSPOWER) Will Pay A Smaller Dividend Than Last Year

Genus Power Infrastructures Limited's (NSE:GENUSPOWER) dividend is being reduced from last year's payment covering the same period to ₹0.60 on the 30th of October. This means that the dividend yield is 0.1%, which is a bit low when comparing to 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 Genus Power Infrastructures' stock price has increased by 43% 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 Genus Power Infrastructures

Genus Power Infrastructures' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Genus Power Infrastructures' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 56.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 10% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ₹0.10 in 2014 to the most recent total annual payment of ₹0.60. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. Genus Power Infrastructures has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. Genus Power Infrastructures has seen EPS rising for the last five years, at 15% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

An additional note is that the company has been raising capital by issuing stock equal to 20% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Genus Power Infrastructures is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. For example, we've picked out 1 warning sign for Genus Power Infrastructures that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.