L&T Technology Services (NSE:LTTS) Could Be A Buy For Its Upcoming Dividend

Readers hoping to buy L&T Technology Services Limited (NSE:LTTS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days 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 can take two business days or more to settle. Thus, you can purchase L&T Technology Services' shares before the 6th of June in order to receive the dividend, which the company will pay on the 16th of July.

The company's next dividend payment will be ₹38.00 per share, and in the last 12 months, the company paid a total of ₹55.00 per share. Based on the last year's worth of payments, L&T Technology Services has a trailing yield of 1.3% on the current stock price of ₹4367.60. 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.

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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. L&T Technology Services paid out a comfortable 46% of its profit last year. A useful secondary check can be to evaluate whether L&T Technology Services generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 39% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that L&T Technology Services'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.

View our latest analysis for L&T Technology Services

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at L&T Technology Services, with earnings per share up 8.8% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, L&T Technology Services has lifted its dividend by approximately 28% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is L&T Technology Services an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and L&T Technology Services is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but L&T Technology Services is being conservative with its dividend payouts and could still perform reasonably over the long run. L&T Technology Services 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 L&T Technology Services is facing. In terms of investment risks, we've identified 1 warning sign with L&T Technology Services and understanding them should be part of your investment process.

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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.