Readers hoping to buy V.S.T. Tillers Tractors Limited (NSE:VSTTILLERS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Meaning, you will need to purchase V.S.T. Tillers Tractors' shares before the 18th of August to receive the dividend, which will be paid on the 26th of September.
The company's next dividend payment will be ₹20.00 per share, on the back of last year when the company paid a total of ₹20.00 to shareholders. Based on the last year's worth of payments, V.S.T. Tillers Tractors stock has a trailing yield of around 1.1% on the current share price of ₹1897.65. 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 V.S.T. Tillers Tractors has been able to grow its dividends, or if the dividend might be cut.
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. V.S.T. Tillers Tractors has a low and conservative payout ratio of just 19% of its income after tax. 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. It paid out 0.005% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that V.S.T. Tillers Tractors'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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see V.S.T. Tillers Tractors earnings per share are up 4.1% per annum over the last five years. V.S.T. Tillers Tractors is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, V.S.T. Tillers Tractors has increased its dividend at approximately 8.3% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is V.S.T. Tillers Tractors worth buying for its dividend? Earnings per share growth has been growing somewhat, and V.S.T. Tillers Tractors is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but V.S.T. Tillers Tractors is being conservative with its dividend payouts and could still perform reasonably over the long run. V.S.T. Tillers Tractors 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 V.S.T. Tillers Tractors is facing. We've identified 2 warning signs with V.S.T. Tillers Tractors (at least 1 which is a bit concerning), and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top 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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