It looks like Finolex Cables Limited (NSE:FINCABLES) is about to go ex-dividend in the next 3 days. You can purchase shares before the 5th of September in order to receive the dividend, which the company will pay on the 17th of October.
Finolex Cables’s upcoming dividend is ₹4.50 a share, following on from the last 12 months, when the company distributed a total of ₹4.50 per share to shareholders. Calculating the last year’s worth of payments shows that Finolex Cables has a trailing yield of 1.2% on the current share price of ₹367.2. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Finolex Cables has a low and conservative payout ratio of just 18% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.
It’s positive to see that Finolex Cables’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we’re glad to see Finolex Cables’s earnings per share have risen 13% per annum over the last five years. Finolex Cables is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Finolex Cables has lifted its dividend by approximately 37% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Should investors buy Finolex Cables for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Finolex Cables paid out less than half its earnings and a bit over half its free cash flow. There’s a lot to like about Finolex Cables, and we would prioritise taking a closer look at it.
Curious what other investors think of Finolex Cables? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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