Here's What We Like About Himatsingka Seide's (NSE:HIMATSEIDE) Upcoming Dividend

Himatsingka Seide Limited (NSE:HIMATSEIDE) is about to trade ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Himatsingka Seide's shares before the 19th of September in order to be eligible for the dividend, which will be paid on the 25th of October.

The company's next dividend payment will be ₹0.25 per share. Last year, in total, the company distributed ₹0.25 to shareholders. Looking at the last 12 months of distributions, Himatsingka Seide has a trailing yield of approximately 0.2% on its current stock price of ₹128.21. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Himatsingka Seide has been able to grow its dividends, or if the dividend might be cut.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Himatsingka Seide paid out just 3.6% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 1.2% of its free cash flow in the last year.

It's positive to see that Himatsingka Seide'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.

See our latest analysis for Himatsingka Seide

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Himatsingka Seide's earnings have been skyrocketing, up 31% per annum for the past five years. Himatsingka Seide looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

We'd also point out that Himatsingka Seide issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Himatsingka Seide has seen its dividend decline 16% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

From a dividend perspective, should investors buy or avoid Himatsingka Seide? It's great that Himatsingka Seide is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

So while Himatsingka Seide looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Be aware that Himatsingka Seide is showing 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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.