IRB Infrastructure Developers Limited (NSE:IRB) Will Pay A ₹0.10 Dividend In Four Days

It looks like IRB Infrastructure Developers Limited (NSE:IRB) is about to go ex-dividend in the next 4 days. 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. This means that investors who purchase IRB Infrastructure Developers' shares on or after the 8th of November will not receive the dividend, which will be paid on the 29th of November.

The company's upcoming dividend is ₹0.10 a share, following on from the last 12 months, when the company distributed a total of ₹0.30 per share to shareholders. Based on the last year's worth of payments, IRB Infrastructure Developers stock has a trailing yield of around 0.6% on the current share price of ₹53.49. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for IRB Infrastructure Developers

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. That's why it's good to see IRB Infrastructure Developers paying out a modest 39% of its earnings. 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. Luckily it paid out just 8.9% of its free cash flow last year.

It's positive to see that IRB Infrastructure Developers'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?

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. Readers will understand then, why we're concerned to see IRB Infrastructure Developers's earnings per share have dropped 16% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

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 9.3% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Has IRB Infrastructure Developers got what it takes to maintain its dividend payments? IRB Infrastructure Developers has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's hard to get excited about IRB Infrastructure Developers from a dividend perspective.

In light of that, while IRB Infrastructure Developers has an appealing dividend, it's worth knowing the risks involved with this stock. For example, IRB Infrastructure Developers has 2 warning signs (and 1 which can't be ignored) we think you should know about.

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.