Why You Might Be Interested In Indian Metals and Ferro Alloys Limited (NSE:IMFA) For Its Upcoming Dividend

It looks like Indian Metals and Ferro Alloys Limited (NSE:IMFA) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be two business days 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Indian Metals and Ferro Alloys' shares before the 25th of July in order to receive the dividend, which the company will pay on the 29th of August.

The company's upcoming dividend is ₹5.00 a share, following on from the last 12 months, when the company distributed a total of ₹15.00 per share to shareholders. Looking at the last 12 months of distributions, Indian Metals and Ferro Alloys has a trailing yield of approximately 2.6% on its current stock price of ₹763.90. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Indian Metals and Ferro Alloys can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Indian Metals and Ferro Alloys's payout ratio is modest, at just 28% of profit. 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. Fortunately, it paid out only 41% of its free cash flow in the past 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.

View our latest analysis for Indian Metals and Ferro Alloys

Click here to see how much of its profit Indian Metals and Ferro Alloys paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Indian Metals and Ferro Alloys's earnings have been skyrocketing, up 25% per annum for the past five years. Indian Metals and Ferro Alloys is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Indian Metals and Ferro Alloys has lifted its dividend by approximately 30% 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.

Final Takeaway

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. There's a lot to like about Indian Metals and Ferro Alloys, and we would prioritise taking a closer look at it.

So while Indian Metals and Ferro Alloys looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Indian Metals and Ferro Alloys you should know about.

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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.