DCM Shriram Limited (NSE:DCMSHRIRAM) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like DCM Shriram Limited (NSE:DCMSHRIRAM) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 27th of January in order to be eligible for this dividend, which will be paid on the 17th of February.

DCM Shriram's next dividend payment will be ₹5.50 per share. Last year, in total, the company distributed ₹9.70 to shareholders. Based on the last year's worth of payments, DCM Shriram stock has a trailing yield of around 2.2% on the current share price of ₹456.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether DCM Shriram has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for DCM Shriram

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. DCM Shriram has a low and conservative payout ratio of just 13% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 15% of its free cash flow last year.

It's positive to see that DCM Shriram's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit DCM Shriram 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see DCM Shriram's earnings have been skyrocketing, up 26% per annum for the past five years. DCM Shriram earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. DCM Shriram has delivered an average of 28% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid DCM Shriram? DCM Shriram has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in DCM Shriram for the dividends alone, you should always be mindful of the risks involved. For example - DCM Shriram has 3 warning signs we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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