Should You Buy eMudhra Limited (NSE:EMUDHRA) For Its Upcoming Dividend?

It looks like eMudhra Limited (NSE:EMUDHRA) is about to go ex-dividend in the next three 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase eMudhra's shares before the 18th of June to receive the dividend, which will be paid on the 25th of July.

The company's upcoming dividend is ₹1.25 a share, following on from the last 12 months, when the company distributed a total of ₹1.25 per share to shareholders. Calculating the last year's worth of payments shows that eMudhra has a trailing yield of 0.2% on the current share price of ₹749.55. If you buy this business for its dividend, you should have an idea of whether eMudhra's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. eMudhra has a low and conservative payout ratio of just 12% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that eMudhra'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.

Check out our latest analysis for eMudhra

Click here to see how much of its profit eMudhra 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see eMudhra's earnings have been skyrocketing, up 34% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the eMudhra dividends are largely the same as they were three years ago.

Final Takeaway

Is eMudhra an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, eMudhra paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

Want to learn more about eMudhra's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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.