Why You Might Be Interested In Indian Railway Finance Corporation Limited (NSE:IRFC) For Its Upcoming 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 Indian Railway Finance Corporation Limited (NSE:IRFC) is about to go ex-dividend in just 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Accordingly, Indian Railway Finance investors that purchase the stock on or after the 22nd of August will not receive the dividend, which will be paid on the 28th of September.

The company's next dividend payment will be ₹0.70 per share. Last year, in total, the company distributed ₹1.50 to shareholders. Looking at the last 12 months of distributions, Indian Railway Finance has a trailing yield of approximately 0.8% on its current stock price of ₹178.77. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Indian Railway Finance

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Indian Railway Finance paying out a modest 31% of its earnings.

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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Indian Railway Finance earnings per share are up 8.6% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Indian Railway Finance's dividend payments per share have declined at 11% per year on average over the past three 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.

To Sum It Up

From a dividend perspective, should investors buy or avoid Indian Railway Finance? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Overall, Indian Railway Finance looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Be aware that Indian Railway Finance is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning...

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.