Should You Buy Sree Rayalaseema Hi-Strength Hypo Limited (NSE:SRHHYPOLTD) For Its Upcoming 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 Sree Rayalaseema Hi-Strength Hypo Limited (NSE:SRHHYPOLTD) is about to go ex-dividend in just three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Sree Rayalaseema Hi-Strength Hypo's shares before the 12th of September in order to be eligible for the dividend, which will be paid on the 18th of October.

The company's next dividend payment will be ₹3.00 per share. Last year, in total, the company distributed ₹3.00 to shareholders. Looking at the last 12 months of distributions, Sree Rayalaseema Hi-Strength Hypo has a trailing yield of approximately 0.5% on its current stock price of ₹573.00. If you buy this business for its dividend, you should have an idea of whether Sree Rayalaseema Hi-Strength Hypo's dividend is reliable and sustainable. As a result, readers should always check whether Sree Rayalaseema Hi-Strength Hypo has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Sree Rayalaseema Hi-Strength Hypo

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. Sree Rayalaseema Hi-Strength Hypo is paying out just 6.5% 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. It paid out 5.7% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Sree Rayalaseema Hi-Strength Hypo'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 Sree Rayalaseema Hi-Strength Hypo paid out over the last 12 months.

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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Sree Rayalaseema Hi-Strength Hypo's earnings have been skyrocketing, up 29% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Sree Rayalaseema Hi-Strength Hypo looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, Sree Rayalaseema Hi-Strength Hypo has increased its dividend at approximately 8.0% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy Sree Rayalaseema Hi-Strength Hypo for the upcoming dividend? Sree Rayalaseema Hi-Strength Hypo has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine 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 Sree Rayalaseema Hi-Strength Hypo for the dividends alone, you should always be mindful of the risks involved. For example - Sree Rayalaseema Hi-Strength Hypo has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.