Here's What We Like About Solex Energy's (NSE:SOLEX) Upcoming Dividend

Solex Energy Limited (NSE:SOLEX) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 2nd of September in order to receive the dividend, which the company will pay on the 11th of October.

Solex Energy's next dividend payment will be ₹0.50 per share, and in the last 12 months, the company paid a total of ₹0.50 per share. Calculating the last year's worth of payments shows that Solex Energy has a trailing yield of 2.1% on the current share price of ₹24. 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 Solex Energy can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Solex Energy

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Solex Energy paid out just 5.5% 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 Solex Energy generated enough free cash flow to afford its dividend. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Solex Energy's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Solex Energy's earnings have been skyrocketing, up 32% per annum for the past five years. Solex Energy looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Solex Energy has seen its dividend decline 29% per annum on average over the past two years, which is not great to see. Solex Energy is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Solex Energy worth buying for its dividend? Solex Energy has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past two years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To that end, you should learn about the 2 warning signs we've spotted with Solex Energy (including 1 which shouldn't be ignored).

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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