Dividend Investors: Don't Be Too Quick To Buy PTL Enterprises Limited (NSE:PTL) 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 PTL Enterprises Limited (NSE:PTL) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be two business days 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. 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. Therefore, if you purchase PTL Enterprises' shares on or after the 11th of July, you won't be eligible to receive the dividend, when it is paid on the 31st of August.

The company's upcoming dividend is ₹1.75 a share, following on from the last 12 months, when the company distributed a total of ₹1.75 per share to shareholders. Based on the last year's worth of payments, PTL Enterprises stock has a trailing yield of around 3.8% on the current share price of ₹45.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether PTL Enterprises has been able to grow its dividends, or if the dividend might be cut.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. PTL Enterprises is paying out an acceptable 64% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether PTL Enterprises generated enough free cash flow to afford its dividend. It paid out 88% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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.

View our latest analysis for PTL Enterprises

Click here to see how much of its profit PTL Enterprises paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that PTL Enterprises's earnings are down 3.7% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PTL Enterprises has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Should investors buy PTL Enterprises for the upcoming dividend? While earnings per share are shrinking, it's encouraging to see that at least PTL Enterprises's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in PTL Enterprises and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for PTL Enterprises (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

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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.