Adacel Technologies (ASX:ADA) Has Announced That Its Dividend Will Be Reduced To $0.015

Adacel Technologies Limited (ASX:ADA) is reducing its dividend from last year's comparable payment to $0.015 on the 26th of April. This means the annual payment is 8.9% of the current stock price, which is above the average for the industry.

See our latest analysis for Adacel Technologies

Adacel Technologies Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Adacel Technologies was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

If the company can't turn things around, EPS could fall by 17.8% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 188%, which is definitely a bit high to be sustainable going forward.

Adacel Technologies' Dividend Has Lacked Consistency

Adacel Technologies has been paying dividends for a while, but the track record isn't stellar. 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 $0.0107, compared to the most recent full-year payment of $0.0372. This means that it has been growing its distributions at 17% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 18% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Adacel Technologies' Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Adacel Technologies is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 5 warning signs for Adacel Technologies you should be aware of, and 3 of them are significant. 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.

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