Stock Analysis

Indian Metals and Ferro Alloys (NSE:IMFA) Could Be A Buy For Its Upcoming Dividend

NSEI:IMFA
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Indian Metals and Ferro Alloys Limited (NSE:IMFA) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Meaning, you will need to purchase Indian Metals and Ferro Alloys' shares before the 14th of November to receive the dividend, which will be paid on the 7th of December.

The company's next dividend payment will be ₹10.00 per share, and in the last 12 months, the company paid a total of ₹15.00 per share. Last year's total dividend payments show that Indian Metals and Ferro Alloys has a trailing yield of 1.9% on the current share price of ₹784.80. If you buy this business for its dividend, you should have an idea of whether Indian Metals and Ferro Alloys's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Indian Metals and Ferro Alloys

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Indian Metals and Ferro Alloys is paying out just 9.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.

It's positive to see that Indian Metals and Ferro Alloys'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 Indian Metals and Ferro Alloys paid out over the last 12 months.

historic-dividend
NSEI:IMFA Historic Dividend November 10th 2024

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Indian Metals and Ferro Alloys's earnings have been skyrocketing, up 37% per annum for the past five years. Indian Metals and Ferro Alloys looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Indian Metals and Ferro Alloys has lifted its dividend by approximately 26% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Indian Metals and Ferro Alloys worth buying for its dividend? It's great that Indian Metals and Ferro Alloys is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Indian Metals and Ferro Alloys looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Indian Metals and Ferro Alloys has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Indian Metals and Ferro Alloys that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.