Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) is about to go ex-dividend in the next day or two. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a 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. Meaning, you will need to purchase Crompton Greaves Consumer Electricals' shares before the 24th of July to receive the dividend, which will be paid on the 7th of September.

The company's next dividend payment will be ₹3.00 per share, on the back of last year when the company paid a total of ₹3.00 to shareholders. Based on the last year's worth of payments, Crompton Greaves Consumer Electricals stock has a trailing yield of around 0.9% on the current share price of ₹341.15. 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 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. Crompton Greaves Consumer Electricals paid out a comfortable 35% of its profit last year. 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 31% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Crompton Greaves Consumer Electricals'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.

Check out our latest analysis for Crompton Greaves Consumer Electricals

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 not encouraging to see that Crompton Greaves Consumer Electricals's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last eight years, Crompton Greaves Consumer Electricals has lifted its dividend by approximately 9.1% a year on average.

Final Takeaway

Should investors buy Crompton Greaves Consumer Electricals for the upcoming dividend? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Crompton Greaves Consumer Electricals is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Crompton Greaves Consumer Electricals for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Crompton Greaves Consumer Electricals you should be aware of.

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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.