Three Days Left To Buy India Nippon Electricals Limited (NSE:INDNIPPON) Before The Ex-Dividend Date

India Nippon Electricals Limited (NSE:INDNIPPON) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase India Nippon Electricals' shares on or after the 21st of February, you won't be eligible to receive the dividend, when it is paid on the 12th of March.

The company's next dividend payment will be ₹6.25 per share, and in the last 12 months, the company paid a total of ₹6.00 per share. Based on the last year's worth of payments, India Nippon Electricals has a trailing yield of 1.3% on the current stock price of ₹473.15. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for India Nippon Electricals

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately India Nippon Electricals's payout ratio is modest, at just 30% of profit. 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. It paid out an unsustainably high 278% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how India Nippon Electricals intends to continue funding this dividend, or if it could be forced to cut the payment.

India Nippon Electricals does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While India Nippon Electricals's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were India Nippon Electricals to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit India Nippon Electricals 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. This is why it's a relief to see India Nippon Electricals earnings per share are up 9.1% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, India Nippon Electricals has lifted its dividend by approximately 5.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has India Nippon Electricals got what it takes to maintain its dividend payments? India Nippon Electricals delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 278% of its cash flow over the last year, which is a mediocre outcome. All things considered, we are not particularly enthused about India Nippon Electricals from a dividend perspective.

If you're not too concerned about India Nippon Electricals's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For instance, we've identified 3 warning signs for India Nippon Electricals (1 shouldn't be ignored) you should be aware of.

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.