Be Sure To Check Out Dolat Algotech Limited (NSE:DOLATALGO) Before It Goes Ex-Dividend

Dolat Algotech Limited (NSE:DOLATALGO) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is one business day 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Dolat Algotech's shares on or after the 20th of November will not receive the dividend, which will be paid on the 6th of December.

The company's next dividend payment will be ₹0.15 per share. Last year, in total, the company distributed ₹0.25 to shareholders. Based on the last year's worth of payments, Dolat Algotech has a trailing yield of 0.2% on the current stock price of ₹67.55. If you buy this business for its dividend, you should have an idea of whether Dolat Algotech's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Dolat Algotech

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Dolat Algotech is paying out just 3.2% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

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.

Click here to see how much of its profit Dolat Algotech 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. That's why it's comforting to see Dolat Algotech's earnings have been skyrocketing, up 22% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dolat Algotech has seen its dividend decline 5.6% per annum on average over the past five years, which is not great to see. Dolat Algotech 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

Has Dolat Algotech got what it takes to maintain its dividend payments? 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 strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Overall, Dolat Algotech looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

In light of that, while Dolat Algotech has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Dolat Algotech and you should be aware of it before buying any shares.

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.