Interested In Touchwood Entertainment's (NSE:TOUCHWOOD) Upcoming ₹0.40 Dividend? You Have Three Days Left

Readers hoping to buy Touchwood Entertainment Limited (NSE:TOUCHWOOD) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Touchwood Entertainment's shares before the 20th of September in order to receive the dividend, which the company will pay on the 27th of October.

The company's next dividend payment will be ₹0.40 per share, and in the last 12 months, the company paid a total of ₹0.40 per share. Based on the last year's worth of payments, Touchwood Entertainment stock has a trailing yield of around 0.3% on the current share price of ₹153.42. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Touchwood Entertainment

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. Touchwood Entertainment has a low and conservative payout ratio of just 14% of its income after tax. A useful secondary check can be to evaluate whether Touchwood Entertainment generated enough free cash flow to afford its dividend.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Touchwood Entertainment's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Touchwood Entertainment's dividend payments per share have declined at 13% per year on average over the past five years, which is uninspiring.

To Sum It Up

Has Touchwood Entertainment got what it takes to maintain its dividend payments? Earnings per share have barely grown in this time, and although Touchwood Entertainment is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Touchwood Entertainment's dividend merits.

If you're not too concerned about Touchwood Entertainment's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. In terms of investment risks, we've identified 5 warning signs with Touchwood Entertainment and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.