Readers hoping to buy RKEC Projects Limited (NSE:RKEC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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. Accordingly, RKEC Projects investors that purchase the stock on or after the 16th of September will not receive the dividend, which will be paid on the 27th of October.
The company's upcoming dividend is ₹1.20 a share, following on from the last 12 months, when the company distributed a total of ₹1.20 per share to shareholders. Last year's total dividend payments show that RKEC Projects has a trailing yield of 1.4% on the current share price of ₹83.3. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether RKEC Projects has been able to grow its dividends, or if the dividend might be cut.
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. RKEC Projects paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. RKEC Projects paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see RKEC Projects's earnings have been skyrocketing, up 28% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. RKEC Projects has seen its dividend decline 16% per annum on average over the past three years, which is not great to see. RKEC Projects is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Should investors buy RKEC Projects for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. RKEC Projects ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
So while RKEC Projects looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, RKEC Projects has 4 warning signs (and 1 which is significant) we think you should know about.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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. 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.
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