Is It Smart To Buy Ramco Industries Limited (NSE:RAMCOIND) Before It Goes Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ramco Industries Limited (NSE:RAMCOIND) is about to go ex-dividend in just 3 days. You can purchase shares before the 22nd of March in order to receive the dividend, which the company will pay on the 11th of April.

Ramco Industries's next dividend payment will be ₹1.00 per share, on the back of last year when the company paid a total of ₹1.00 to shareholders. Based on the last year's worth of payments, Ramco Industries stock has a trailing yield of around 0.4% on the current share price of ₹262.55. If you buy this business for its dividend, you should have an idea of whether Ramco Industries's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Ramco Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ramco Industries is paying out just 1.7% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 14% of its cash flow last year.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Ramco Industries has grown its earnings rapidly, up 23% a year for the past five years. Ramco Industries 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 past 10 years, Ramco Industries has increased its dividend at approximately 1.6% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Is Ramco Industries worth buying for its dividend? It's great that Ramco Industries 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. Overall we think this is an attractive combination and worthy of further research.

Keen to explore more data on Ramco Industries's financial performance? Check out our visualisation of its historical revenue and earnings growth.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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