There's A Lot To Like About IDFC First Bank's (NSE:IDFCFIRSTB) Upcoming ₹0.25 Dividend

IDFC First Bank Limited (NSE:IDFCFIRSTB) stock is about to trade ex-dividend in three days. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase IDFC First Bank's shares on or after the 11th of July will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be ₹0.25 per share, and in the last 12 months, the company paid a total of ₹0.25 per share. Based on the last year's worth of payments, IDFC First Bank stock has a trailing yield of around 0.3% on the current share price of ₹77.88. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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 usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. IDFC First Bank paid out just 12% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. IDFC First Bank paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Check out our latest analysis for IDFC First Bank

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 IDFC First Bank's earnings have been skyrocketing, up 57% per annum for the past five years.

IDFC First Bank also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. IDFC First Bank's dividend payments are broadly unchanged compared to where they were nine years ago.

To Sum It Up

Is IDFC First Bank an attractive dividend stock, or better left on the shelf? Companies like IDFC First Bank that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Overall, IDFC First Bank looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

While it's tempting to invest in IDFC First Bank for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for IDFC First Bank that we recommend you consider before investing in the business.

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.