Be Sure To Check Out Shriram Pistons & Rings Limited (NSE:SHRIPISTON) Before It Goes Ex-Dividend

Readers hoping to buy Shriram Pistons & Rings Limited (NSE:SHRIPISTON) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Shriram Pistons & Rings investors that purchase the stock on or after the 25th of July will not receive the dividend, which will be paid on the 31st of August.

The company's upcoming dividend is ₹5.00 a share, following on from the last 12 months, when the company distributed a total of ₹10.00 per share to shareholders. Based on the last year's worth of payments, Shriram Pistons & Rings has a trailing yield of 0.4% on the current stock price of ₹2446.50. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Shriram Pistons & Rings can afford its dividend, and if the dividend could grow.

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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. Shriram Pistons & Rings has a low and conservative payout ratio of just 8.7% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its 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.

View our latest analysis for Shriram Pistons & Rings

Click here to see how much of its profit Shriram Pistons & Rings 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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Shriram Pistons & Rings has grown its earnings rapidly, up 48% a year for the past five years. Shriram Pistons & Rings looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past eight years, Shriram Pistons & Rings has increased its dividend at approximately 12% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Is Shriram Pistons & Rings worth buying for its dividend? It's great that Shriram Pistons & Rings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Shriram Pistons & Rings has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Shriram Pistons & Rings that we recommend you consider before investing in the business.

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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.