Munjal Auto Industries Limited (NSE:MUNJALAU) Pays A ₹2.00 Dividend In Just Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Munjal Auto Industries Limited (NSE:MUNJALAU) is about to trade ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Munjal Auto Industries' shares on or after the 19th of September, you won't be eligible to receive the dividend, when it is paid on the 25th of October.

The company's upcoming dividend is ₹2.00 a share, following on from the last 12 months, when the company distributed a total of ₹2.00 per share to shareholders. Last year's total dividend payments show that Munjal Auto Industries has a trailing yield of 1.5% on the current share price of ₹132.66. If you buy this business for its dividend, you should have an idea of whether Munjal Auto Industries's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Munjal Auto 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. Munjal Auto Industries paid out 52% of its earnings to investors last year, a normal payout level for most businesses. 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. Luckily it paid out just 23% of its free cash flow last year.

It's positive to see that Munjal Auto Industries's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Munjal Auto 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 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 Munjal Auto Industries earnings per share are up 2.3% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Munjal Auto Industries has lifted its dividend by approximately 4.8% 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

Is Munjal Auto Industries an attractive dividend stock, or better left on the shelf? While earnings per share growth has been modest, Munjal Auto Industries's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Munjal Auto Industries today.

In light of that, while Munjal Auto Industries has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 3 warning signs for Munjal Auto Industries that you should be aware of before investing in their shares.

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

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

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.