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 three 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. 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, Indian Railway Catering & Tourism investors that purchase the stock on or after the 20th of February will not receive the dividend, which will be paid on the 13th of March.

The company's next dividend payment will be ₹3.00 per share, and in the last 12 months, the company paid a total of ₹8.00 per share. Based on the last year's worth of payments, Indian Railway Catering & Tourism stock has a trailing yield of around 1.1% on the current share price of ₹732.60. If you buy this business for its dividend, you should have an idea of whether Indian Railway Catering & Tourism's dividend is reliable and sustainable. So we need to investigate whether Indian Railway Catering & Tourism can afford its dividend, and if the dividend could grow.

See our latest analysis for Indian Railway Catering & Tourism

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. Indian Railway Catering & Tourism paid out 71% of its earnings to investors last year, a normal payout level for most businesses. 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 distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. It's encouraging to see Indian Railway Catering & Tourism has grown its earnings rapidly, up 32% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Indian Railway Catering & Tourism has delivered 32% dividend growth per year on average over the past five years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Indian Railway Catering & Tourism for the upcoming dividend? We like Indian Railway Catering & Tourism's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Indian Railway Catering & Tourism has 1 warning sign we think 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.