Swaraj Engines Limited (NSE:SWARAJENG) Is About To Go Ex-Dividend, And It Pays A 3.1% Yield

It looks like Swaraj Engines Limited (NSE:SWARAJENG) is about to go ex-dividend in the next day or so. 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 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. Accordingly, Swaraj Engines investors that purchase the stock on or after the 28th of June will not receive the dividend, which will be paid on the 17th of August.

The company's next dividend payment will be ₹95.00 per share. Last year, in total, the company distributed ₹95.00 to shareholders. Based on the last year's worth of payments, Swaraj Engines has a trailing yield of 3.1% on the current stock price of ₹3016.85. If you buy this business for its dividend, you should have an idea of whether Swaraj Engines's dividend is reliable and sustainable. As a result, readers should always check whether Swaraj Engines has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Swaraj Engines

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. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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. Swaraj Engines paid out more free cash flow than it generated - 118%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Swaraj Engines paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Swaraj Engines's ability to maintain its dividend.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Swaraj Engines's earnings per share have risen 11% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Swaraj Engines has lifted its dividend by approximately 22% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Has Swaraj Engines got what it takes to maintain its dividend payments? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 118% of its cashflow, which is uncomfortably high. In summary, while it has some positive characteristics, we're not inclined to race out and buy Swaraj Engines today.

With that being said, if dividends aren't your biggest concern with Swaraj Engines, you should know about the other risks facing this business. We've identified 2 warning signs with Swaraj Engines (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.

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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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