CARE Ratings Limited (NSE:CARERATING) Looks Interesting, And It's About To Pay A Dividend

CARE Ratings Limited (NSE:CARERATING) stock is about to trade ex-dividend in 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Meaning, you will need to purchase CARE Ratings' shares before the 19th of November to receive the dividend, which will be paid on the 12th of December.

The company's upcoming dividend is ₹8.00 a share, following on from the last 12 months, when the company distributed a total of ₹18.00 per share to shareholders. Based on the last year's worth of payments, CARE Ratings has a trailing yield of 1.1% on the current stock price of ₹1597.40. If you buy this business for its dividend, you should have an idea of whether CARE Ratings's dividend is reliable and sustainable. So we need to investigate whether CARE Ratings 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. CARE Ratings paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Check out our latest analysis for CARE Ratings

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

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see CARE Ratings's earnings per share have risen 13% per annum over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CARE Ratings has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see. CARE Ratings is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Should investors buy CARE Ratings for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. CARE Ratings ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

On that note, you'll want to research what risks CARE Ratings is facing. To help with this, we've discovered 1 warning sign for CARE Ratings that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.