Sarda Energy & Minerals Limited (NSE:SARDAEN) Looks Interesting, And It's About To Pay A Dividend

Sarda Energy & Minerals Limited (NSE:SARDAEN) stock is about to trade ex-dividend in 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Sarda Energy & Minerals investors that purchase the stock on or after the 22nd of August will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be ₹1.50 per share, on the back of last year when the company paid a total of ₹1.50 to shareholders. Looking at the last 12 months of distributions, Sarda Energy & Minerals has a trailing yield of approximately 0.3% on its current stock price of ₹554.15. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sarda Energy & Minerals has a low and conservative payout ratio of just 7.6% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 8.9% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Sarda Energy & Minerals

Click here to see how much of its profit Sarda Energy & Minerals 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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Sarda Energy & Minerals's earnings have been skyrocketing, up 50% per annum for the past five years. Sarda Energy & Minerals earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sarda Energy & Minerals has delivered an average of 17% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Should investors buy Sarda Energy & Minerals for the upcoming dividend? Sarda Energy & Minerals 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.

While it's tempting to invest in Sarda Energy & Minerals for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Sarda Energy & Minerals and understanding them should be part of your investment process.

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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.