Three Days Left To Buy Orient Electric Limited (NSE:ORIENTELEC) Before The Ex-Dividend Date

Orient Electric Limited (NSE:ORIENTELEC) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Thus, you can purchase Orient Electric's shares before the 18th of July in order to receive the dividend, which the company will pay on the 24th of August.

The company's upcoming dividend is ₹0.75 a share, following on from the last 12 months, when the company distributed a total of ₹1.50 per share to shareholders. Based on the last year's worth of payments, Orient Electric stock has a trailing yield of around 0.7% on the current share price of ₹221.78. 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.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Orient Electric paid out a comfortable 38% of its profit last year. A useful secondary check can be to evaluate whether Orient Electric generated enough free cash flow to afford its dividend. The company paid out 99% 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.

While Orient Electric's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Orient Electric's ability to maintain its dividend.

Check out our latest analysis for Orient Electric

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Orient Electric's earnings per share have remained 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. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last seven years, Orient Electric has lifted its dividend by approximately 6.0% a year on average.

To Sum It Up

From a dividend perspective, should investors buy or avoid Orient Electric? Earnings per share have been effectively flat over this time, and Orient Electric's paying out less than half its profits and 99% of its cash flow. It's not common to see a company paying out a limited amount of its profits yet a substantially higher percentage of its cash flow, so we'd flag this as a concern. All things considered, we are not particularly enthused about Orient Electric from a dividend perspective.

So if you want to do more digging on Orient Electric, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 1 warning sign for Orient Electric 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.