Sree Rayalaseema Hi-Strength Hypo (NSE:SRHHYPOLTD) Could Be A Buy 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 3 days. The ex-dividend date is commonly two business days 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Sree Rayalaseema Hi-Strength Hypo investors that purchase the stock on or after the 19th of September will not receive the dividend, which will be paid on the 24th 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. Based on the last year's worth of payments, Sree Rayalaseema Hi-Strength Hypo stock has a trailing yield of around 0.5% on the current share price of ₹603.20. 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! So we need to investigate whether Sree Rayalaseema Hi-Strength Hypo 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. Sree Rayalaseema Hi-Strength Hypo has a low and conservative payout ratio of just 5.7% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 8.2% of its cash flow last year.

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.

See our latest analysis for Sree Rayalaseema Hi-Strength Hypo

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. 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, Sree Rayalaseema Hi-Strength Hypo's earnings per share have been growing at 19% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings 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. Sree Rayalaseema Hi-Strength Hypo has delivered 7.2% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Sree Rayalaseema Hi-Strength Hypo an attractive dividend stock, or better left on the shelf? 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 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 Sree Rayalaseema Hi-Strength Hypo for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Sree Rayalaseema Hi-Strength Hypo 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.