Altron Limited (JSE:AEL) is reducing its dividend to ZAR0.19 on the 5th of Junewhich is 17% less than last year's comparable payment of ZAR0.23. However, the dividend yield of 5.2% is still a decent boost to shareholder returns.
Check out our latest analysis for Altron
Altron's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Altron's dividend made up quite a large proportion of earnings but only 28% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Looking forward, could fall by 15.5% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 82%, which is definitely on the higher side.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ZAR0.60 in 2013 to the most recent total annual payment of ZAR0.39. The dividend has shrunk at around 4.2% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Altron's EPS has fallen by approximately 16% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
In Summary
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Altron you should be aware of, and 1 of them doesn't sit too well with us. 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.
About JSE:AEL
Altron
Provides information and communication technology solutions in South Africa, rest of Africa, Europe, and internationally.
Flawless balance sheet with solid track record.
