IRB Infrastructure Developers Limited (NSE:IRB) Looks Interesting, And It's About To Pay A Dividend

It looks like IRB Infrastructure Developers Limited (NSE:IRB) is about to go ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase IRB Infrastructure Developers' shares before the 18th of November to receive the dividend, which will be paid on the 12th of December.

The company's next dividend payment will be ₹0.10 per share, and in the last 12 months, the company paid a total of ₹0.27 per share. Calculating the last year's worth of payments shows that IRB Infrastructure Developers has a trailing yield of 0.6% on the current share price of ₹42.35. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. IRB Infrastructure Developers is paying out just 0.9% 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. The good news is it paid out just 9.8% of its free cash flow in the last year.

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.

See our latest analysis for IRB Infrastructure Developers

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 IRB Infrastructure Developers has grown its earnings rapidly, up 40% a year for the past five years. IRB Infrastructure Developers looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. IRB Infrastructure Developers has seen its dividend decline 3.9% per annum on average over the past 10 years, which is not great to see. IRB Infrastructure Developers 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.

To Sum It Up

Has IRB Infrastructure Developers got what it takes to maintain its dividend payments? It's great that IRB Infrastructure Developers is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. IRB Infrastructure Developers looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in IRB Infrastructure Developers for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 4 warning signs we've spotted with IRB Infrastructure Developers (including 2 which shouldn't be ignored).

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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.