Here's Why We're Wary Of Buying Kakatiya Cement Sugar and Industries' (NSE:KAKATCEM) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kakatiya Cement Sugar and Industries Limited (NSE:KAKATCEM) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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, Kakatiya Cement Sugar and Industries investors that purchase the stock on or after the 21st of August will not receive the dividend, which will be paid on the 27th of September.

The company's next dividend payment will be ₹3.00 per share, on the back of last year when the company paid a total of ₹3.00 to shareholders. Based on the last year's worth of payments, Kakatiya Cement Sugar and Industries stock has a trailing yield of around 1.9% on the current share price of ₹155.37. If you buy this business for its dividend, you should have an idea of whether Kakatiya Cement Sugar and Industries's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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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. Kakatiya Cement Sugar and Industries lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.

View our latest analysis for Kakatiya Cement Sugar and Industries

Click here to see how much of its profit Kakatiya Cement Sugar and Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Kakatiya Cement Sugar and Industries reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Kakatiya Cement Sugar and Industries has increased its dividend at approximately 1.1% a year on average.

Remember, you can always get a snapshot of Kakatiya Cement Sugar and Industries's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Is Kakatiya Cement Sugar and Industries worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think Kakatiya Cement Sugar and Industries is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Kakatiya Cement Sugar and Industries as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 3 warning signs for Kakatiya Cement Sugar and Industries (1 is significant!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.