Why You Might Be Interested In Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) For Its Upcoming Dividend

Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) is about to trade ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Crompton Greaves Consumer Electricals' shares before the 8th of July in order to be eligible for the dividend, which will be paid on the 22nd of August.

The company's next dividend payment will be ₹2.50 per share. Last year, in total, the company distributed ₹5.00 to shareholders. Based on the last year's worth of payments, Crompton Greaves Consumer Electricals has a trailing yield of 1.1% on the current stock price of ₹446.9. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Crompton Greaves Consumer Electricals

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Crompton Greaves Consumer Electricals paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Crompton Greaves Consumer Electricals generated enough free cash flow to afford its dividend. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.

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.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Crompton Greaves Consumer Electricals has grown its earnings rapidly, up 24% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Crompton Greaves Consumer Electricals could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past four years, Crompton Greaves Consumer Electricals has increased its dividend at approximately 35% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Crompton Greaves Consumer Electricals for the upcoming dividend? We like Crompton Greaves Consumer Electricals's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Crompton Greaves Consumer Electricals looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Crompton Greaves Consumer Electricals for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Crompton Greaves Consumer Electricals that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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