SML Isuzu (NSE:SMLISUZU) Could Be A Buy For Its Upcoming Dividend

SML Isuzu Limited (NSE:SMLISUZU) is about to trade ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase SML Isuzu's shares before the 9th of July in order to be eligible for the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is ₹18.00 a share, following on from the last 12 months, when the company distributed a total of ₹18.00 per share to shareholders. Looking at the last 12 months of distributions, SML Isuzu has a trailing yield of approximately 0.7% on its current stock price of ₹2722.80. 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! As a result, readers should always check whether SML Isuzu has been able to grow its dividends, or if the dividend might be cut.

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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. SML Isuzu paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.

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.

View our latest analysis for SML Isuzu

Click here to see how much of its profit SML Isuzu 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. It's encouraging to see SML Isuzu has grown its earnings rapidly, up 63% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, SML Isuzu looks like a promising growth company.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. SML Isuzu has delivered an average of 20% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy SML Isuzu for the upcoming dividend? SML Isuzu 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. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in SML Isuzu for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 3 warning signs with SML Isuzu and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.