Om Infra Limited (NSE:OMINFRAL) Pays A ₹0.40 Dividend In Just Three Days

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 Om Infra Limited (NSE:OMINFRAL) is about to go ex-dividend in just 3 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Om Infra's shares on or after the 22nd of September, you won't be eligible to receive the dividend, when it is paid on the 28th of October.

The company's next dividend payment will be ₹0.40 per share, on the back of last year when the company paid a total of ₹0.40 to shareholders. Based on the last year's worth of payments, Om Infra stock has a trailing yield of around 0.4% on the current share price of ₹110.11. 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! We need to see whether the dividend is covered by earnings and if it's growing.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Om Infra paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Om Infra paid out more free cash flow than it generated - 128%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Om Infra paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Om Infra to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

See our latest analysis for Om Infra

Click here to see how much of its profit Om Infra 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 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 Om Infra earnings per share are up 7.4% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Om Infra has lifted its dividend by approximately 7.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy Om Infra for the upcoming dividend? Om Infra delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 128% of its cash flow over the last year, which is a mediocre outcome. In summary, it's hard to get excited about Om Infra from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Om Infra, you should know about the other risks facing this business. Our analysis shows 1 warning sign for Om Infra and you should be aware of it before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.