Should You Buy Power & Instrumental (Gujarat) Limited (NSE:PIGL) For Its Upcoming Dividend?

Readers hoping to buy Power & Instrumental (Gujarat) Limited (NSE:PIGL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Power & Instrumental (Gujarat)'s shares before the 23rd of September to receive the dividend, which will be paid on the 30th of October.

The company's upcoming dividend is ₹0.20 a share, following on from the last 12 months, when the company distributed a total of ₹0.20 per share to shareholders. Looking at the last 12 months of distributions, Power & Instrumental (Gujarat) has a trailing yield of approximately 0.1% on its current stock price of ₹177.08. If you buy this business for its dividend, you should have an idea of whether Power & Instrumental (Gujarat)'s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Power & Instrumental (Gujarat)

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. Power & Instrumental (Gujarat) is paying out just 4.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

Click here to see how much of its profit Power & Instrumental (Gujarat) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Power & Instrumental (Gujarat), with earnings per share up 4.1% on average over the last five years. Power & Instrumental (Gujarat) 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.

Given that Power & Instrumental (Gujarat) has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

From a dividend perspective, should investors buy or avoid Power & Instrumental (Gujarat)? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. We think this is a pretty attractive combination, and would be interested in investigating Power & Instrumental (Gujarat) more closely.

In light of that, while Power & Instrumental (Gujarat) has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 2 warning signs we've spotted with Power & Instrumental (Gujarat) (including 1 which is potentially serious).

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