Inrom Construction Industries Ltd (TLV:INRM) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Inrom Construction Industries Ltd (TLV:INRM) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Inrom Construction Industries' shares before the 3rd of September in order to be eligible for the dividend, which will be paid on the 18th of September.

The company's next dividend payment will be ₪0.0328045 per share. Last year, in total, the company distributed ₪0.17 to shareholders. Calculating the last year's worth of payments shows that Inrom Construction Industries has a trailing yield of 1.5% on the current share price of ₪11.46. 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.

View our latest analysis for Inrom Construction Industries

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Inrom Construction Industries is paying out just 14% 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 Inrom Construction Industries generated enough free cash flow to afford its dividend. Luckily it paid out just 13% of its free 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 Inrom Construction Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Inrom Construction Industries earnings per share are up 2.6% per annum over the last five years. Inrom Construction Industries is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

We'd also point out that Inrom Construction Industries 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. Inrom Construction Industries has seen its dividend decline 12% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is Inrom Construction Industries an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Inrom Construction 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Inrom Construction Industries is halfway there. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Inrom Construction Industries is facing. Every company has risks, and we've spotted 2 warning signs for Inrom Construction Industries you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.