We Wouldn't Be Too Quick To Buy Indo Thai Securities Limited (NSE:INDOTHAI) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Indo Thai Securities Limited (NSE:INDOTHAI) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be one business day 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 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 Indo Thai Securities' shares on or after the 13th of February will not receive the dividend, which will be paid on the 3rd of March.

The company's upcoming dividend is ₹1.00 a share, following on from the last 12 months, when the company distributed a total of ₹1.00 per share to shareholders. Based on the last year's worth of payments, Indo Thai Securities has a trailing yield of 0.3% on the current stock price of ₹355.55. If you buy this business for its dividend, you should have an idea of whether Indo Thai Securities's dividend is reliable and sustainable. As a result, readers should always check whether Indo Thai Securities has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Indo Thai Securities

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. Indo Thai Securities's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see how much of its profit Indo Thai Securities paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Indo Thai Securities's 8.0% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Indo Thai Securities's dividend payments are broadly unchanged compared to where they were nine years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

To Sum It Up

From a dividend perspective, should investors buy or avoid Indo Thai Securities? Earnings per share are in decline and Indo Thai Securities is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Indo Thai Securities. For example, we've found 5 warning signs for Indo Thai Securities (2 are potentially serious!) that deserve your attention before investing in the 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.