Should You Buy ZF Commercial Vehicle Control Systems India Limited (NSE:ZFCVINDIA) For Its Upcoming Dividend?

ZF Commercial Vehicle Control Systems India Limited (NSE:ZFCVINDIA) is about to trade ex-dividend in the next day or two. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase ZF Commercial Vehicle Control Systems India's shares before the 8th of August in order to receive the dividend, which the company will pay on the 18th of September.

The company's next dividend payment will be ₹19.00 per share, on the back of last year when the company paid a total of ₹19.00 to shareholders. Based on the last year's worth of payments, ZF Commercial Vehicle Control Systems India has a trailing yield of 0.1% on the current stock price of ₹13604.00. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. ZF Commercial Vehicle Control Systems India has a low and conservative payout ratio of just 7.8% 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 distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that ZF Commercial Vehicle Control Systems India'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.

See our latest analysis for ZF Commercial Vehicle Control Systems India

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see ZF Commercial Vehicle Control Systems India's earnings have been skyrocketing, up 24% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, ZF Commercial Vehicle Control Systems India has increased its dividend at approximately 14% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is ZF Commercial Vehicle Control Systems India an attractive dividend stock, or better left on the shelf? ZF Commercial Vehicle Control Systems India has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. ZF Commercial Vehicle Control Systems India looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks ZF Commercial Vehicle Control Systems India is facing. For example - ZF Commercial Vehicle Control Systems India has 1 warning sign we think you should be aware of.

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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.