There's A Lot To Like About Praj Industries' (NSE:PRAJIND) Upcoming ₹6.00 Dividend

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 Praj Industries Limited (NSE:PRAJIND) is about to go ex-dividend in just 3 days. The ex-dividend date is one business day before a company's record date, 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 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 Praj Industries' shares on or after the 18th of July, you won't be eligible to receive the dividend, when it is paid on the 24th of August.

The company's next dividend payment will be ₹6.00 per share, on the back of last year when the company paid a total of ₹6.00 to shareholders. Based on the last year's worth of payments, Praj Industries stock has a trailing yield of around 0.8% on the current share price of ₹723.75. If you buy this business for its dividend, you should have an idea of whether Praj Industries's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Praj Industries

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. Fortunately Praj Industries's payout ratio is modest, at just 39% of profit. 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. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. It's encouraging to see Praj Industries has grown its earnings rapidly, up 33% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Praj Industries has lifted its dividend by approximately 17% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Has Praj Industries got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Praj Industries paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Praj Industries, and we would prioritise taking a closer look at it.

While it's tempting to invest in Praj Industries for the dividends alone, you should always be mindful of the risks involved. Be aware that Praj Industries is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.

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