Income Investors Should Know That Reliance Industrial Infrastructure Limited (NSE:RIIL) Goes Ex-Dividend Soon

Readers hoping to buy Reliance Industrial Infrastructure Limited (NSE:RIIL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Reliance Industrial Infrastructure's shares before the 5th of June in order to be eligible for the dividend, which will be paid on the 12th of July.

The company's next dividend payment will be ₹3.50 per share, on the back of last year when the company paid a total of ₹3.50 to shareholders. Based on the last year's worth of payments, Reliance Industrial Infrastructure has a trailing yield of 0.3% on the current stock price of ₹1181.85. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Reliance Industrial Infrastructure

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. That's why it's good to see Reliance Industrial Infrastructure paying out a modest 40% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 265% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Reliance Industrial Infrastructure is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Reliance Industrial Infrastructure does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Reliance Industrial Infrastructure paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Reliance Industrial Infrastructure's ability to maintain its dividend.

Click here to see how much of its profit Reliance Industrial Infrastructure 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Reliance Industrial Infrastructure earnings per share are up 7.4% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Reliance Industrial Infrastructure's dividend payments are broadly unchanged compared to where they were 10 years ago.

To Sum It Up

Should investors buy Reliance Industrial Infrastructure for the upcoming dividend? Reliance Industrial Infrastructure delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 265% of its cash flow over the last year, which is a mediocre outcome. In summary, while it has some positive characteristics, we're not inclined to race out and buy Reliance Industrial Infrastructure today.

If you want to look further into Reliance Industrial Infrastructure, it's worth knowing the risks this business faces. Our analysis shows 2 warning signs for Reliance Industrial Infrastructure and you should be aware of these before buying any 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.