Centum Electronics Limited (NSE:CENTUM) Is About To Go Ex-Dividend, And It Pays A 0.7% Yield

It looks like Centum Electronics Limited (NSE:CENTUM) is about to go ex-dividend in the next three days. This means that investors who purchase shares on or after the 3rd of September will not receive the dividend, which will be paid on the 15th of October.

Centum Electronics's next dividend payment will be ₹2.50 per share, on the back of last year when the company paid a total of ₹2.50 to shareholders. Based on the last year's worth of payments, Centum Electronics has a trailing yield of 0.7% on the current stock price of ₹358.8. 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! As a result, readers should always check whether Centum Electronics has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Centum Electronics

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Centum Electronics is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Centum Electronics generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 6.1% of its cash flow last year.

It's positive to see that Centum Electronics'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.

Click here to see how much of its profit Centum Electronics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Centum Electronics's earnings per share have fallen at approximately 14% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Centum Electronics has delivered 9.6% dividend growth per year on average over the past 10 years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Centum Electronics? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

On that note, you'll want to research what risks Centum Electronics is facing. For instance, we've identified 7 warning signs for Centum Electronics (1 is significant) you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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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