Why It Might Not Make Sense 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. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Dhruv Consultancy Services' shares on or after the 22nd of November, you won't be eligible to receive the dividend, when it is paid on the 10th of December.

The company's next dividend payment will be ₹0.10 per share, on the back of last year when the company paid a total of ₹0.50 to shareholders. Last year's total dividend payments show that Dhruv Consultancy Services has a trailing yield of 0.5% on the current share price of ₹109.92. 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! As a result, readers should always check whether Dhruv Consultancy Services has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Dhruv Consultancy Services

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Dhruv Consultancy Services has a low and conservative payout ratio of just 6.6% of its income after tax. 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 last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

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. Dhruv Consultancy Services's earnings per share have fallen at approximately 11% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

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

Has Dhruv Consultancy Services got what it takes to maintain its dividend payments? 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. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Dhruv Consultancy Services.

So if you're still interested in Dhruv Consultancy Services despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 4 warning signs for Dhruv Consultancy Services that we strongly recommend you have a look at before investing in the company.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.