Do These 3 Checks Before Buying Radiant Cash Management Services Limited (NSE:RADIANTCMS) For Its Upcoming Dividend

It looks like Radiant Cash Management Services Limited (NSE:RADIANTCMS) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Meaning, you will need to purchase Radiant Cash Management Services' shares before the 29th of August to receive the dividend, which will be paid on the 5th of October.

The company's next dividend payment will be ₹2.50 per share, and in the last 12 months, the company paid a total of ₹2.50 per share. Looking at the last 12 months of distributions, Radiant Cash Management Services has a trailing yield of approximately 2.8% on its current stock price of ₹87.81. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Radiant Cash Management Services can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Radiant Cash Management Services

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Radiant Cash Management Services paid out 65% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 102% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Radiant Cash Management Services does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Radiant Cash Management Services paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Radiant Cash Management Services's ability to maintain its dividend.

Click here to see how much of its profit Radiant Cash Management Services paid out over the last 12 months.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Radiant Cash Management Services, with earnings per share up 5.2% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last two years, Radiant Cash Management Services has lifted its dividend by approximately 12% 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 Radiant Cash Management Services an attractive dividend stock, or better left on the shelf? Earnings per share have grown somewhat, although Radiant Cash Management Services paid out over half its profits and the dividend was not well covered by free cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Radiant Cash Management Services.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Radiant Cash Management Services. For example, we've found 2 warning signs for Radiant Cash Management Services that we recommend you consider before investing in the business.

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.