Is Selan Exploration Technology Limited (NSE:SELAN) An Attractive Dividend Stock?
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Is Selan Exploration Technology Limited (NSE:SELAN) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
A high yield and a long history of paying dividends is an appealing combination for Selan Exploration Technology. We'd guess that plenty of investors have purchased it for the income. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
Click the interactive chart for our full dividend analysis
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Selan Exploration Technology paid out 16% of its profit as dividends, over the trailing twelve month period. We'd say its dividends are thoroughly covered by earnings.
With a strong net cash balance, Selan Exploration Technology investors may not have much to worry about in the near term from a dividend perspective.
We update our data on Selan Exploration Technology every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Selan Exploration Technology has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During the past ten-year period, the first annual payment was ₹1.36 in 2009, compared to ₹5.00 last year. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time.
So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.
Dividend Growth Potential
The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient's purchasing power. Earnings have grown at around 3.2% a year for the past five years, which is better than seeing them shrink! As we saw above, earnings per share growth has not been strong. However, the payout ratio is low, and some companies can deliver adequate dividend performance simply by increasing the payout ratio.
Conclusion
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that Selan Exploration Technology has low and conservative payout ratios. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. Selan Exploration Technology has a number of positive attributes, but it falls slightly short of our (admittedly high) standards. Were there evidence of a strong moat or an attractive valuation, it could still be well worth a look.
You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Selan Exploration Technology stock.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
