Be Sure To Check Out Linc Limited (NSE:LINC) Before It Goes Ex-Dividend

Readers hoping to buy Linc Limited (NSE:LINC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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, Linc investors that purchase the stock on or after the 21st of August will not receive the dividend, which will be paid on the 27th of September.

The company's next dividend payment will be ₹5.00 per share, on the back of last year when the company paid a total of ₹5.00 to shareholders. Looking at the last 12 months of distributions, Linc has a trailing yield of approximately 0.8% on its current stock price of ₹602.40. If you buy this business for its dividend, you should have an idea of whether Linc's dividend is reliable and sustainable. So we need to investigate whether Linc can afford its dividend, and if the dividend could grow.

View our latest analysis for Linc

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. Linc has a low and conservative payout ratio of just 21% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Linc'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 how much of its profit Linc paid out over the last 12 months.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Linc has grown its earnings rapidly, up 47% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Linc has increased its dividend at approximately 13% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Linc worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Linc, and we would prioritise taking a closer look at it.

In light of that, while Linc has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Linc and you should be aware of this before buying any shares.

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.