Jamna Auto Industries Limited (NSE:JAMNAAUTO) Passed Our Checks, And It's About To Pay A ₹1.00 Dividend

It looks like Jamna Auto Industries Limited (NSE:JAMNAAUTO) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Jamna Auto Industries' shares on or after the 19th of November will not receive the dividend, which will be paid on the 12th of December.

The company's next dividend payment will be ₹1.00 per share, on the back of last year when the company paid a total of ₹2.10 to shareholders. Calculating the last year's worth of payments shows that Jamna Auto Industries has a trailing yield of 1.9% on the current share price of ₹109.10. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Jamna Auto Industries has a low and conservative payout ratio of just 24% of its income after tax. 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. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Jamna Auto Industries'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.

View our latest analysis for Jamna Auto Industries

Click here to see how much of its profit Jamna Auto Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Jamna Auto Industries's earnings have been skyrocketing, up 30% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Jamna Auto Industries has increased its dividend at approximately 25% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Jamna Auto Industries an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Jamna Auto Industries paid out less than half its earnings and a bit over half its free cash flow. Jamna Auto Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Jamna Auto Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Jamna Auto Industries and understanding them should be part of your investment process.

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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.