Is It Smart To Buy Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) Before It Goes Ex-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 Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) is about to go ex-dividend in just four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Crompton Greaves Consumer Electricals' shares on or after the 10th of July will not receive the dividend, which will be paid on the 25th of August.

The company's upcoming dividend is ₹3.00 a share, following on from the last 12 months, when the company distributed a total of ₹3.00 per share to shareholders. Based on the last year's worth of payments, Crompton Greaves Consumer Electricals has a trailing yield of 0.7% on the current stock price of ₹408.60. If you buy this business for its dividend, you should have an idea of whether Crompton Greaves Consumer Electricals's dividend is reliable and sustainable. As a result, readers should always check whether Crompton Greaves Consumer Electricals has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Crompton Greaves Consumer Electricals

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. Fortunately Crompton Greaves Consumer Electricals's payout ratio is modest, at just 44% of profit. 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. It distributed 25% 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.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Crompton Greaves Consumer Electricals's flat earnings 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. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, seven years ago, Crompton Greaves Consumer Electricals has lifted its dividend by approximately 10% a year on average.

To Sum It Up

Is Crompton Greaves Consumer Electricals an attractive dividend stock, or better left on the shelf? 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.

So while Crompton Greaves Consumer Electricals looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Crompton Greaves Consumer Electricals you should know about.

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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.

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