Is It Smart To Buy Kirloskar Ferrous Industries Limited (NSE:KIRLFER) Before It Goes Ex-Dividend?

Kirloskar Ferrous Industries Limited (NSE:KIRLFER) stock is about to trade ex-dividend in three days. If you purchase the stock on or after the 10th of March, you won't be eligible to receive this dividend, when it is paid on the 26th of March.

Kirloskar Ferrous Industries's upcoming dividend is ₹2.00 a share, following on from the last 12 months, when the company distributed a total of ₹2.00 per share to shareholders. Based on the last year's worth of payments, Kirloskar Ferrous Industries has a trailing yield of 1.2% on the current stock price of ₹163. 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 Kirloskar Ferrous Industries can afford its dividend, and if the dividend could grow.

View our latest analysis for Kirloskar Ferrous Industries

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. Kirloskar Ferrous Industries has a low and conservative payout ratio of just 12% of its income after tax. 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. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Kirloskar Ferrous Industries'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 Kirloskar Ferrous Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 Kirloskar Ferrous Industries's earnings have been skyrocketing, up 35% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kirloskar Ferrous Industries has delivered an average of 7.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Kirloskar Ferrous Industries? Earnings per share have grown at a nice rate in recent times and over the last year, Kirloskar Ferrous Industries paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Kirloskar Ferrous Industries is facing. Our analysis shows 2 warning signs for Kirloskar Ferrous Industries and you should be aware of them before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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