Here's Why We're Wary Of Buying Dhruv Consultancy Services' (NSE:DHRUV) For Its Upcoming Dividend

Dhruv Consultancy Services Limited (NSE:DHRUV) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Thus, you can purchase Dhruv Consultancy Services' shares before the 26th of August in order to receive the dividend, which the company will pay on the 2nd of October.

The company's next dividend payment will be ₹0.25 per share. Last year, in total, the company distributed ₹0.50 to shareholders. Looking at the last 12 months of distributions, Dhruv Consultancy Services has a trailing yield of approximately 0.4% on its current stock price of ₹135.58. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Dhruv Consultancy Services

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. Dhruv Consultancy Services is paying out just 6.6% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Dhruv Consultancy Services's 7.8% 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.

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.

To Sum It Up

Is Dhruv Consultancy Services worth buying for its 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. Bottom line: Dhruv Consultancy Services has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Dhruv Consultancy Services. To help with this, we've discovered 3 warning signs for Dhruv Consultancy Services that you should be aware of before investing in their shares.

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.