Should You Buy Shivalik Bimetal Controls Limited (NSE:SBCL) For Its Upcoming Dividend?

Shivalik Bimetal Controls Limited (NSE:SBCL) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Thus, you can purchase Shivalik Bimetal Controls' shares before the 20th of February in order to receive the dividend, which the company will pay on the 13th of March.

The company's upcoming dividend is ₹1.20 a share, following on from the last 12 months, when the company distributed a total of ₹2.40 per share to shareholders. Based on the last year's worth of payments, Shivalik Bimetal Controls stock has a trailing yield of around 0.5% on the current share price of ₹483.45. 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.

Check out our latest analysis for Shivalik Bimetal Controls

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. Shivalik Bimetal Controls is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Shivalik Bimetal Controls generated enough free cash flow to afford its dividend. The good news is it paid out just 17% of its free cash flow in the last year.

It's positive to see that Shivalik Bimetal Controls'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Shivalik Bimetal Controls has grown its earnings rapidly, up 27% a year for the past five years. Shivalik Bimetal Controls 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shivalik Bimetal Controls has delivered 40% dividend growth per year on average over the past eight years. 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 Shivalik Bimetal Controls got what it takes to maintain its dividend payments? Shivalik Bimetal Controls has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past eight years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Shivalik Bimetal Controls for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Shivalik Bimetal Controls and you should be aware of this before buying any shares.

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.