Why You Might Be Interested In Indian Railway Catering & Tourism Corporation Limited (NSE:IRCTC) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Indian Railway Catering & Tourism Corporation Limited (NSE:IRCTC) is about to go ex-dividend in just four days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Indian Railway Catering & Tourism investors that purchase the stock on or after the 14th of November will not receive the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be ₹4.00 per share, on the back of last year when the company paid a total of ₹6.50 to shareholders. Last year's total dividend payments show that Indian Railway Catering & Tourism has a trailing yield of 0.8% on the current share price of ₹832.50. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Indian Railway Catering & Tourism

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. Indian Railway Catering & Tourism paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Indian Railway Catering & Tourism generated enough free cash flow to afford its dividend. It paid out more than half (63%) of its free cash flow in the past year, which is within an average 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Indian Railway Catering & Tourism has grown its earnings rapidly, up 31% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Indian Railway Catering & Tourism could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the 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.

The Bottom Line

Is Indian Railway Catering & Tourism an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Indian Railway Catering & Tourism's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 53% and 63% respectively. Overall, it's hard to get excited about Indian Railway Catering & Tourism from a dividend perspective.

So while Indian Railway Catering & Tourism looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for Indian Railway Catering & Tourism that we strongly recommend you have a look at before investing in the company.

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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.