Don't Race Out To Buy IFGL Refractories Limited (NSE:IFGLEXPOR) Just Because It's Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see IFGL Refractories Limited (NSE:IFGLEXPOR) is about to trade ex-dividend in the next two days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, IFGL Refractories investors that purchase the stock on or after the 13th of May will not receive the dividend, which will be paid on the 6th of June.

The company's next dividend payment will be ₹6.00 per share. Last year, in total, the company distributed ₹7.00 to shareholders. Based on the last year's worth of payments, IFGL Refractories stock has a trailing yield of around 1.9% on the current share price of ₹368.35. 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 IFGL Refractories has been able to grow its dividends, or if the dividend might be cut.

We've discovered 2 warning signs about IFGL Refractories. View them for free.

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. Fortunately IFGL Refractories's payout ratio is modest, at just 31% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 140% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

IFGL Refractories paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were IFGL Refractories to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

View our latest analysis for IFGL Refractories

Click here to see how much of its profit IFGL Refractories paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that IFGL Refractories's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past seven years, IFGL Refractories has increased its dividend at approximately 20% a year on average.

To Sum It Up

Has IFGL Refractories got what it takes to maintain its dividend payments? It's disappointing to see earnings per share have fallen slightly, even though IFGL Refractories is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of IFGL Refractories don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for IFGL Refractories and you should be aware of these before buying any shares.

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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.