Rico Auto Industries Limited (NSE:RICOAUTO) Stock Goes Ex-Dividend In Just Two Days

It looks like Rico Auto Industries Limited (NSE:RICOAUTO) is about to go ex-dividend in the next two 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Rico Auto Industries' shares before the 20th of September in order to be eligible for the dividend, which will be paid on the 27th of October.

The company's next dividend payment will be ₹0.60 per share, and in the last 12 months, the company paid a total of ₹0.60 per share. Based on the last year's worth of payments, Rico Auto Industries stock has a trailing yield of around 0.5% on the current share price of ₹117.34. If you buy this business for its dividend, you should have an idea of whether Rico Auto Industries's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Rico Auto Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Rico Auto Industries has a low and conservative payout ratio of just 21% of its income after tax. 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 13% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Rico 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 Rico Auto Industries paid out over the last 12 months.

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. With that in mind, we're discomforted by Rico Auto Industries's 5.4% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Rico Auto Industries has delivered 20% dividend growth per year on average over the past 10 years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Rico Auto Industries? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, Rico Auto Industries looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Rico Auto Industries has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 2 warning signs for Rico Auto Industries (1 is concerning) you should be aware of.

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.