Is It Smart To Buy Sunteck Realty Limited (NSE:SUNTECK) Before It Goes Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sunteck Realty Limited (NSE:SUNTECK) is about to trade ex-dividend in the next 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Sunteck Realty's shares on or after the 23rd of September, you won't be eligible to receive the dividend, when it is paid on the 30th of October.

The company's next dividend payment will be ₹1.50 per share, on the back of last year when the company paid a total of ₹1.50 to shareholders. Looking at the last 12 months of distributions, Sunteck Realty has a trailing yield of approximately 0.3% on its current stock price of ₹452.70. If you buy this business for its dividend, you should have an idea of whether Sunteck Realty's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Sunteck Realty paid out just 15% 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 Sunteck Realty generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 14% of its 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 Sunteck Realty

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Fortunately for readers, Sunteck Realty's earnings per share have been growing at 16% 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. Sunteck Realty has delivered 12% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Sunteck Realty for the upcoming dividend? Sunteck Realty has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Sunteck Realty looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Ever wonder what the future holds for Sunteck Realty? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.