Why You Might Be Interested In Amara Raja Energy & Mobility Limited (NSE:ARE&M) For Its Upcoming Dividend

Amara Raja Energy & Mobility Limited (NSE:ARE&M) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Amara Raja Energy & Mobility's shares before the 14th of November in order to be eligible for the dividend, which will be paid on the 3rd of December.

The company's next dividend payment will be ₹5.30 per share. Last year, in total, the company distributed ₹10.60 to shareholders. Based on the last year's worth of payments, Amara Raja Energy & Mobility stock has a trailing yield of around 0.8% on the current share price of ₹1303.45. If you buy this business for its dividend, you should have an idea of whether Amara Raja Energy & Mobility's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Amara Raja Energy & Mobility

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. Amara Raja Energy & Mobility is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Amara Raja Energy & Mobility'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.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Amara Raja Energy & Mobility's earnings per share have been growing at 14% a year for the past five years. Amara Raja Energy & Mobility has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Amara Raja Energy & Mobility has lifted its dividend by approximately 13% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Amara Raja Energy & Mobility worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Amara Raja Energy & Mobility paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Amara Raja Energy & Mobility has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Amara Raja Energy & Mobility has 2 warning signs we think you should be aware of.

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.