There's A Lot To Like About Aartech Solonics' (NSE:AARTECH) Upcoming ₹0.25 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Aartech Solonics Limited (NSE:AARTECH) is about to go ex-dividend in just day or two. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Aartech Solonics' shares on or after the 23rd of September will not receive the dividend, which will be paid on the 30th of October.

The company's upcoming dividend is ₹0.25 a share, following on from the last 12 months, when the company distributed a total of ₹0.083 per share to shareholders. Calculating the last year's worth of payments shows that Aartech Solonics has a trailing yield of 0.1% on the current share price of ₹73.36. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Aartech Solonics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Aartech Solonics paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Over the last year it paid out 62% of its free cash flow as dividends, within the usual range for most companies.

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 Aartech Solonics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Aartech Solonics has grown its earnings rapidly, up 26% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Aartech Solonics's dividend payments per share have declined at 6.9% per year on average over the past four years, which is uninspiring. Aartech Solonics is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Should investors buy Aartech Solonics for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Aartech Solonics, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Aartech Solonics is facing. Our analysis shows 3 warning signs for Aartech Solonics and you should be aware of these before buying any shares.

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.