Is It Smart To Buy Indian Railway Catering & Tourism Corporation Limited (NSE:IRCTC) Before It Goes Ex-Dividend?

Indian Railway Catering & Tourism Corporation Limited (NSE:IRCTC) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Indian Railway Catering & Tourism's shares before the 23rd of August to receive the dividend, which will be paid on the 29th of September.

The company's next dividend payment will be ₹4.00 per share, and in the last 12 months, the company paid a total of ₹6.50 per share. Calculating the last year's worth of payments shows that Indian Railway Catering & Tourism has a trailing yield of 0.7% on the current share price of ₹924.75. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Indian Railway Catering & Tourism

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Indian Railway Catering & Tourism paid out a comfortable 47% of its profit last year. 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. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Indian Railway Catering & Tourism'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.

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

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. 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 Indian Railway Catering & Tourism's earnings have been skyrocketing, up 31% 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. Since the start of our data, five years ago, Indian Railway Catering & Tourism has lifted its dividend by approximately 27% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy Indian Railway Catering & Tourism for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Indian Railway Catering & Tourism paid out less than half its earnings and a bit over half its free cash flow. Indian Railway Catering & Tourism 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 Indian Railway Catering & Tourism is facing. Case in point: We've spotted 1 warning sign for Indian Railway Catering & Tourism you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.