Precision Wires India (NSE:PRECWIRE) Could Be A Buy For Its Upcoming Dividend

Precision Wires India Ltd. (NSE:PRECWIRE) stock is about to trade ex-dividend in 3 days. Ex-dividend means that investors that purchase the stock on or after the 23rd of November will not receive this dividend, which will be paid on the 30th of November.

Precision Wires India's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹2.00 to shareholders. Calculating the last year's worth of payments shows that Precision Wires India has a trailing yield of 1.2% on the current share price of ₹161. If you buy this business for its dividend, you should have an idea of whether Precision Wires India'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 Precision Wires India

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Precision Wires India paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Precision Wires India generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 6.2% of its cash flow last year.

It's positive to see that Precision Wires India'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 Precision Wires India 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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Precision Wires India's earnings per share have been growing at 19% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Precision Wires India has seen its dividend decline 1.8% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Is Precision Wires India an attractive dividend stock, or better left on the shelf? Precision Wires India has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Precision Wires India looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Precision Wires India is facing. For example - Precision Wires India has 3 warning signs we think you should be aware of.

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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This article by Simply Wall St is general in nature. 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.
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