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

It looks like INDUS Holding AG (ETR:INH) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase INDUS Holding's shares before the 28th of May in order to receive the dividend, which the company will pay on the 2nd of June.

The company's next dividend payment will be €1.20 per share. Last year, in total, the company distributed €1.20 to shareholders. Based on the last year's worth of payments, INDUS Holding stock has a trailing yield of around 5.4% on the current share price of €22.10. 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 check whether the dividend payments are covered, and if earnings are growing.

We've discovered 2 warning signs about INDUS Holding. View them for free.

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. INDUS Holding paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. 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. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.

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.

View our latest analysis for INDUS Holding

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that INDUS Holding's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. INDUS Holding's dividend payments are broadly unchanged compared to where they were 10 years ago.

Final Takeaway

From a dividend perspective, should investors buy or avoid INDUS Holding? While earnings per share are flat, at least INDUS Holding has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering INDUS Holding as an investment, you'll find it beneficial to know what risks this stock is facing. For example, INDUS Holding has 2 warning signs (and 1 which is significant) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.