Indian Railway Finance Corporation Limited (NSE:IRFC) Looks Interesting, And It's About To Pay A Dividend

Indian Railway Finance Corporation Limited (NSE:IRFC) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Indian Railway Finance's shares before the 12th of November to receive the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be ₹0.80 per share. Last year, in total, the company distributed ₹1.50 to shareholders. Based on the last year's worth of payments, Indian Railway Finance stock has a trailing yield of around 1.0% on the current share price of ₹153.90. If you buy this business for its dividend, you should have an idea of whether Indian Railway Finance's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Indian Railway Finance

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. Indian Railway Finance is paying out just 14% 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 Indian Railway Finance 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. This is why it's a relief to see Indian Railway Finance earnings per share are up 8.9% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Indian Railway Finance's dividend payments per share have declined at 8.1% per year on average over the past four years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is Indian Railway Finance worth buying for its dividend? Indian Railway Finance has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. We think this is a pretty attractive combination, and would be interested in investigating Indian Railway Finance more closely.

On that note, you'll want to research what risks Indian Railway Finance is facing. To help with this, we've discovered 2 warning signs for Indian Railway Finance (1 is potentially serious!) that you ought to be aware of before buying the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.