Ratnamani Metals & Tubes (NSE:RATNAMANI) Could Be A Buy For Its Upcoming Dividend

It looks like Ratnamani Metals & Tubes Limited (NSE:RATNAMANI) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Ratnamani Metals & Tubes investors that purchase the stock on or after the 20th of August will not receive the dividend, which will be paid on the 26th of September.

The company's next dividend payment will be ₹14.00 per share. Last year, in total, the company distributed ₹14.00 to shareholders. Looking at the last 12 months of distributions, Ratnamani Metals & Tubes has a trailing yield of approximately 0.4% on its current stock price of ₹3523.40. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Ratnamani Metals & Tubes

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Ratnamani Metals & Tubes paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 28% of its free cash flow in the past year.

It's positive to see that Ratnamani Metals & Tubes'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Ratnamani Metals & Tubes's earnings per share have been growing at 19% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Ratnamani Metals & Tubes has lifted its dividend by approximately 17% 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

Has Ratnamani Metals & Tubes got what it takes to maintain its dividend payments? Ratnamani Metals & Tubes has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Ratnamani Metals & Tubes is facing. Every company has risks, and we've spotted 1 warning sign for Ratnamani Metals & Tubes you should know about.

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.