Is It Smart To Buy J. Kumar Infraprojects Limited (NSE:JKIL) Before It Goes Ex-Dividend?

By
Simply Wall St
Published
September 08, 2021
NSEI:JKIL
Source: Shutterstock

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that J. Kumar Infraprojects Limited (NSE:JKIL) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be one business day 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase J. Kumar Infraprojects' shares before the 13th of September in order to be eligible for the dividend, which will be paid on the 21st of October.

The company's next dividend payment will be ₹1.00 per share, and in the last 12 months, the company paid a total of ₹1.00 per share. Looking at the last 12 months of distributions, J. Kumar Infraprojects has a trailing yield of approximately 0.5% on its current stock price of ₹200.05. 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.

See our latest analysis for J. Kumar Infraprojects

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. J. Kumar Infraprojects paid out just 6.5% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 4.0% of its cash flow last year.

It's positive to see that J. Kumar Infraprojects'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 how much of its profit J. Kumar Infraprojects paid out over the last 12 months.

historic-dividend
NSEI:JKIL Historic Dividend September 9th 2021

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. This is why it's a relief to see J. Kumar Infraprojects earnings per share are up 2.1% per annum over the last five years. J. Kumar Infraprojects is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. J. Kumar Infraprojects has seen its dividend decline 1.2% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Is J. Kumar Infraprojects worth buying for its dividend? Earnings per share growth has been growing somewhat, and J. Kumar Infraprojects is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and J. Kumar Infraprojects is halfway there. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 1 warning sign for J. Kumar Infraprojects that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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