Is It Worth Buying Indiabulls Ventures Limited (NSE:IBVENTURES) For Its 0.7% Dividend Yield?

Could Indiabulls Ventures Limited (NSE:IBVENTURES) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

One way to look into the risks is to look at a snapshot of Indiabulls Ventures's latest financial position, by checking our visualisation of its financial health.

A slim 0.7% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Indiabulls Ventures could have potential. Remember that the recent share price drop will make Indiabulls Ventures's yield look higher, even though recent events might have impacted the company's prospects. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

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Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 13% of Indiabulls Ventures's profits were paid out as dividends in the last 12 months. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Indiabulls Ventures has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have fallen by 20% or more on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was ₹2.00 in 2009, compared to ₹1.00 last year. The dividend has shrunk at around 6.7% a year during that period. Indiabulls Ventures's dividend has been cut sharply at least once, so it hasn't fallen by 6.7% every year, but this is a decent approximation of the long term change.

We struggle to make a case for buying Indiabulls Ventures for its dividend, given that payments have shrunk over the past ten years.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. It's good to see Indiabulls Ventures has been growing its earnings per share at 13% a year over the past five years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We'd also point out that Indiabulls Ventures issued a meaningful number of new shares in the past year. Regularly issuing new shares can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Conclusion

To summarise, shareholders should always check that Indiabulls Ventures's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Indiabulls Ventures has a low and conservative payout ratio. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Indiabulls Ventures has a credible record on several fronts, but falls slightly short of our standards for a dividend stock.

Now, if you want to look closer, it would be worth checking out our free research on Indiabulls Ventures management tenure, salary, and performance.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.