Read This Before Considering RHI Magnesita India Limited (NSE:RHIM) For Its Upcoming ₹2.50 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see RHI Magnesita India Limited (NSE:RHIM) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Thus, you can purchase RHI Magnesita India's shares before the 12th of September in order to receive the dividend, which the company will pay on the 24th of October.

The company's upcoming dividend is ₹2.50 a share, following on from the last 12 months, when the company distributed a total of ₹2.50 per share to shareholders. Based on the last year's worth of payments, RHI Magnesita India has a trailing yield of 0.5% on the current stock price of ₹474.55. 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 RHI Magnesita India can afford its dividend, and if the dividend could grow.

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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. That's why it's good to see RHI Magnesita India paying out a modest 25% of its earnings. A useful secondary check can be to evaluate whether RHI Magnesita India generated enough free cash flow to afford its dividend. It paid out 20% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that RHI Magnesita India'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.

See our latest analysis for RHI Magnesita India

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about RHI Magnesita India's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. RHI Magnesita India has delivered 7.2% dividend growth per year on average over the past 10 years.

Final Takeaway

Has RHI Magnesita India got what it takes to maintain its dividend payments? While it's not great to see that earnings per share are effectively flat over the 10-year period we checked, at least the payout ratios are low and conservative. In summary, while it has some positive characteristics, we're not inclined to race out and buy RHI Magnesita India today.

Curious what other investors think of RHI Magnesita India? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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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.