Sinclairs Hotels Limited (NSE:SINCLAIR) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Sinclairs Hotels Limited (NSE:SINCLAIR) is about to go ex-dividend in the next three days. 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. 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 Sinclairs Hotels' shares on or after the 30th of July will not receive the dividend, which will be paid on the 5th of September.

The company's next dividend payment will be ₹0.80 per share, on the back of last year when the company paid a total of ₹0.80 to shareholders. Last year's total dividend payments show that Sinclairs Hotels has a trailing yield of 0.8% on the current share price of ₹102.41. 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 investigate whether Sinclairs Hotels can afford its dividend, and if the dividend could grow.

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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. Sinclairs Hotels paid out a comfortable 29% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

Check out our latest analysis for Sinclairs Hotels

Click here to see how much of its profit Sinclairs Hotels 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Sinclairs Hotels, with earnings per share up 9.9% on average over the last five years. Decent historical earnings per share growth suggests Sinclairs Hotels has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sinclairs Hotels has delivered an average of 7.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Sinclairs Hotels worth buying for its dividend? Earnings per share have been growing at a steady rate, and Sinclairs Hotels paid out less than half its profits and more than half its free cash flow as dividends over the last year. To summarise, Sinclairs Hotels looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Sinclairs Hotels is facing. Our analysis shows 3 warning signs for Sinclairs Hotels and you should be aware of these before buying any shares.

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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.