3M India Limited (NSE:3MINDIA) Pays A ₹535.00 Dividend In Just Three Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see 3M India Limited (NSE:3MINDIA) is about to trade ex-dividend in the next 3 days. The ex-dividend date generally occurs two days 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 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. This means that investors who purchase 3M India's shares on or after the 25th of July will not receive the dividend, which will be paid on the 25th of September.

The company's upcoming dividend is ₹535.00 a share, following on from the last 12 months, when the company distributed a total of ₹535 per share to shareholders. Looking at the last 12 months of distributions, 3M India has a trailing yield of approximately 1.8% on its current stock price of ₹29900.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether 3M India 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. 3M India paid out a comfortable 38% of its profit last year. A useful secondary check can be to evaluate whether 3M India generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 257% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how 3M India intends to continue funding this dividend, or if it could be forced to cut the payment.

3M India paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to 3M India's ability to maintain its dividend.

See our latest analysis for 3M India

Click here to see how much of its profit 3M India 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at 3M India, with earnings per share up 8.1% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, two years ago, 3M India has lifted its dividend by approximately 131% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is 3M India an attractive dividend stock, or better left on the shelf? 3M India has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. To summarise, 3M India looks okay on this analysis, although it doesn't appear a stand-out opportunity.

With that being said, if dividends aren't your biggest concern with 3M India, you should know about the other risks facing this business. We've identified 2 warning signs with 3M India (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.