Compuage Infocom (NSE:COMPINFO) Could Be A Buy For Its Upcoming Dividend

Compuage Infocom Limited (NSE:COMPINFO) is about to trade ex-dividend in the next day or two. You will need to purchase shares before the 7th of August to receive the dividend, which will be paid on the 17th of September.

Compuage Infocom's next dividend payment will be ₹0.20 per share, and in the last 12 months, the company paid a total of ₹0.20 per share. Based on the last year's worth of payments, Compuage Infocom stock has a trailing yield of around 1.7% on the current share price of ₹11.7. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Compuage Infocom

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Compuage Infocom paid out just 4.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 15% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Compuage Infocom's earnings per share have risen 16% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Compuage Infocom also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Compuage Infocom has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. Compuage Infocom is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Has Compuage Infocom got what it takes to maintain its dividend payments? Compuage Infocom has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Compuage Infocom looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Compuage Infocom has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Compuage Infocom is showing 4 warning signs in our investment analysis, and 2 of those are concerning...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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