Dividend Investors: Don't Be Too Quick To Buy Dhruv Consultancy Services Limited (NSE:DHRUV) For Its Upcoming Dividend

Readers hoping to buy Dhruv Consultancy Services Limited (NSE:DHRUV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Dhruv Consultancy Services' shares before the 14th of February to receive the dividend, which will be paid on the 6th of March.

The company's upcoming dividend is ₹0.10 a share, following on from the last 12 months, when the company distributed a total of ₹0.20 per share to shareholders. Calculating the last year's worth of payments shows that Dhruv Consultancy Services has a trailing yield of 0.2% on the current share price of ₹118.90. If you buy this business for its dividend, you should have an idea of whether Dhruv Consultancy Services's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Dhruv Consultancy Services

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. Dhruv Consultancy Services is paying out just 11% 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. Dhruv Consultancy Services paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Click here to see how much of its profit Dhruv Consultancy Services paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Dhruv Consultancy Services's 13% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

We'd also point out that Dhruv Consultancy Services issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Given that Dhruv Consultancy Services has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Should investors buy Dhruv Consultancy Services for the upcoming dividend? Dhruv Consultancy Services's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Dhruv Consultancy Services don't faze you, it's worth being mindful of the risks involved with this business. For example - Dhruv Consultancy Services has 3 warning signs we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.