Don't Race Out To Buy INDUS Holding AG (ETR:INH) Just Because It's Going Ex-Dividend

By
Simply Wall St
Published
May 21, 2021
XTRA:INH
Source: Shutterstock

INDUS Holding AG (ETR:INH) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase INDUS Holding's shares before the 27th of May in order to receive the dividend, which the company will pay on the 31st of May.

The company's next dividend payment will be €0.80 per share. Last year, in total, the company distributed €0.80 to shareholders. Last year's total dividend payments show that INDUS Holding has a trailing yield of 2.3% on the current share price of €34.6. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether INDUS Holding can afford its dividend, and if the dividend could grow.

Check out our latest analysis for INDUS Holding

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. INDUS Holding's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If INDUS Holding didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 24% of its free cash flow as dividends last year, which is conservatively low.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
XTRA:INH Historic Dividend May 22nd 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. INDUS Holding reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

We'd also point out that INDUS Holding issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. INDUS Holding has delivered an average of 4.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on INDUS Holding's balance sheet health here.

To Sum It Up

Is INDUS Holding an attractive dividend stock, or better left on the shelf? It's hard to get used to INDUS Holding paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: INDUS Holding has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in INDUS Holding and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 3 warning signs for INDUS Holding (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.

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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