Here's What We Like About IIFL Capital Services' (NSE:IIFLSEC) Upcoming Dividend

It looks like IIFL Capital Services Limited (NSE:IIFLSEC) is about to go ex-dividend in the next two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase IIFL Capital Services' shares before the 17th of February in order to receive the dividend, which the company will pay on the 12th of March.

The company's next dividend payment will be ₹3.00 per share. Last year, in total, the company distributed ₹3.00 to shareholders. Looking at the last 12 months of distributions, IIFL Capital Services has a trailing yield of approximately 1.3% on its current stock price of ₹231.15. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether IIFL Capital Services can afford its dividend, and if the dividend could grow.

View our latest analysis for IIFL Capital Services

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. IIFL Capital Services is paying out just 12% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see how much of its profit IIFL Capital Services paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see IIFL Capital Services has grown its earnings rapidly, up 36% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past five years, IIFL Capital Services has increased its dividend at approximately 8.4% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid IIFL Capital Services? Companies like IIFL Capital Services that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. IIFL Capital Services 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.

In light of that, while IIFL Capital Services has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for IIFL Capital Services 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.