Three Days Left To Buy India Motor Parts & Accessories Limited (NSE:IMPAL) Before The Ex-Dividend Date

India Motor Parts & Accessories Limited (NSE:IMPAL) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase India Motor Parts & Accessories' shares on or after the 18th of July will not receive the dividend, which will be paid on the 21st of August.

The company's next dividend payment will be ₹20.00 per share. Last year, in total, the company distributed ₹30.00 to shareholders. Based on the last year's worth of payments, India Motor Parts & Accessories has a trailing yield of 2.6% on the current stock price of ₹1136.60. 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 India Motor Parts & Accessories 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. Fortunately India Motor Parts & Accessories's payout ratio is modest, at just 45% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out dividends equivalent to 216% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

While India Motor Parts & Accessories's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to India Motor Parts & Accessories's ability to maintain its dividend.

View our latest analysis for India Motor Parts & Accessories

Click here to see how much of its profit India Motor Parts & Accessories 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 fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see India Motor Parts & Accessories's earnings per share have risen 11% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, India Motor Parts & Accessories has lifted its dividend by approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid India Motor Parts & Accessories? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. To summarise, India Motor Parts & Accessories looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in India Motor Parts & Accessories 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 India Motor Parts & Accessories you should know about.

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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.