Is It Smart To Buy Subros Limited (NSE:SUBROS) Before It Goes Ex-Dividend?

By
Simply Wall St
Published
September 01, 2021
NSEI:SUBROS
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Subros Limited (NSE:SUBROS) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Subros investors that purchase the stock on or after the 6th of September will not receive the dividend, which will be paid on the 14th of October.

The company's next dividend payment will be ₹0.70 per share, on the back of last year when the company paid a total of ₹0.70 to shareholders. Last year's total dividend payments show that Subros has a trailing yield of 0.2% on the current share price of ₹310.7. 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 Subros can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Subros

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Subros is paying out just 6.1% 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 Subros generated enough free cash flow to afford its dividend. The good news is it paid out just 3.6% of its free cash flow in the 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 Subros paid out over the last 12 months.

historic-dividend
NSEI:SUBROS Historic Dividend September 2nd 2021

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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Subros has grown its earnings rapidly, up 23% a year for the past five years. Subros 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Subros's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Has Subros got what it takes to maintain its dividend payments? Subros has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Subros looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Keen to explore more data on Subros's financial performance? Check out our visualisation of its historical revenue and earnings growth.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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