There's A Lot To Like About Sandesh's (NSE:SANDESH) Upcoming ₹2.50 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 The Sandesh Limited (NSE:SANDESH) is about to go ex-dividend in just 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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, Sandesh 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 ₹2.50 per share, and in the last 12 months, the company paid a total of ₹5.00 per share. Based on the last year's worth of payments, Sandesh has a trailing yield of 0.4% on the current stock price of ₹1274.90. If you buy this business for its dividend, you should have an idea of whether Sandesh's dividend is reliable and sustainable. So we need to investigate whether Sandesh can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sandesh paid out just 4.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Sandesh generated enough free cash flow to afford its dividend. Luckily it paid out just 2.9% 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 Sandesh

Click here to see how much of its profit Sandesh 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Sandesh earnings per share are up 6.7% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Sandesh has delivered 2.3% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy Sandesh for the upcoming dividend? Earnings per share growth has been growing somewhat, and Sandesh is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Sandesh is being conservative with its dividend payouts and could still perform reasonably over the long run. Sandesh looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Sandesh has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Sandesh and you should be aware of this before buying any shares.

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.