Solution Dynamics (NZSE:SDL) Has Announced A Dividend Of NZ$0.04
The board of Solution Dynamics Limited (NZSE:SDL) has announced that it will pay a dividend on the 30th of September, with investors receiving NZ$0.04 per share. This means the annual payment is 5.2% of the current stock price, which is above the average for the industry.
See our latest analysis for Solution Dynamics
Solution Dynamics' Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Solution Dynamics was paying out 74% of earnings, but a comparatively small 68% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
EPS is set to grow by 13.3% over the next year if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.
Solution Dynamics' Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the annual payment back then was NZ$0.015, compared to the most recent full-year payment of NZ$0.13. This means that it has been growing its distributions at 36% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
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. Solution Dynamics has seen EPS rising for the last five years, at 13% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Solution Dynamics Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think Solution Dynamics might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Solution Dynamics that investors should know about before committing capital to this stock. Is Solution Dynamics 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.
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