Read This Before Considering Foseco India Limited (NSE:FOSECOIND) For Its Upcoming ₹10.00 Dividend

By
Simply Wall St
Published
June 06, 2021
NSEI:FOSECOIND
Source: Shutterstock

Foseco India Limited (NSE:FOSECOIND) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Therefore, if you purchase Foseco India's shares on or after the 11th of June, you won't be eligible to receive the dividend, when it is paid on the 20th of July.

The company's upcoming dividend is ₹10.00 a share, following on from the last 12 months, when the company distributed a total of ₹20.00 per share to shareholders. Last year's total dividend payments show that Foseco India has a trailing yield of 1.4% on the current share price of ₹1435.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Foseco India can afford its dividend, and if the dividend could grow.

See our latest analysis for Foseco India

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Foseco India paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 12% of its cash flow last year.

It's positive to see that Foseco India'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 Foseco India paid out over the last 12 months.

historic-dividend
NSEI:FOSECOIND Historic Dividend June 7th 2021

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. Foseco India's earnings per share have fallen at approximately 10% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Foseco India has delivered 1.6% dividend growth per year on average over the past 10 years.

The Bottom Line

Has Foseco India got what it takes to maintain its dividend payments? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Foseco India's dividend merits.

If you want to look further into Foseco India, it's worth knowing the risks this business faces. Our analysis shows 3 warning signs for Foseco India that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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