Donear Industries Limited (NSE:DONEAR) Looks Interesting, And It's About To Pay A Dividend

Donear Industries Limited (NSE:DONEAR) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 17th of September in order to be eligible for this dividend, which will be paid on the 25th of October.

Donear Industries's next dividend payment will be ₹0.20 per share, on the back of last year when the company paid a total of ₹0.20 to shareholders. Calculating the last year's worth of payments shows that Donear Industries has a trailing yield of 0.8% on the current share price of ₹26.45. 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 investigate whether Donear Industries can afford its dividend, and if the dividend could grow.

View our latest analysis for Donear Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Donear Industries paid out just 8.7% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Donear Industries 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 1.6% of its cash flow 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 Donear Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Donear Industries, with earnings per share up 9.1% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Donear Industries has seen its dividend decline 8.8% per annum on average over the past 10 years, which is not great to see. Donear Industries 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

From a dividend perspective, should investors buy or avoid Donear Industries? Earnings per share growth has been growing somewhat, and Donear Industries is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Donear Industries is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Donear Industries, and we would prioritise taking a closer look at it.

In light of that, while Donear Industries has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 3 warning signs we've spotted with Donear Industries (including 1 which is a bit 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.

If you decide to trade Donear Industries, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.