Steelcast Limited (NSE:STEELCAS) Looks Interesting, And It's About To Pay A Dividend

It looks like Steelcast Limited (NSE:STEELCAS) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, 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 two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Steelcast's shares on or after the 31st of July, you won't be eligible to receive the dividend, when it is paid on the 7th of September.

The company's next dividend payment will be ₹3.15 per share. Last year, in total, the company distributed ₹7.20 to shareholders. Calculating the last year's worth of payments shows that Steelcast has a trailing yield of 1.1% on the current share price of ₹641.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Steelcast can afford its dividend, and if the dividend could grow.

View our latest analysis for Steelcast

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Steelcast is paying out just 19% 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 Steelcast generated enough free cash flow to afford its dividend. Fortunately, it paid out only 40% of its free cash flow in the past 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.

Click here to see how much of its profit Steelcast paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Steelcast has grown its earnings rapidly, up 25% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Steelcast has increased its dividend at approximately 15% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Steelcast worth buying for its dividend? Steelcast 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. Steelcast looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Steelcast is facing. Every company has risks, and we've spotted 1 warning sign for Steelcast you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com