It Might Not Be A Great Idea To Buy Accelya Solutions India Limited (NSE:ACCELYA) For Its Next Dividend

Readers hoping to buy Accelya Solutions India Limited (NSE:ACCELYA) 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Accelya Solutions India investors that purchase the stock on or after the 29th of January will not receive the dividend, which will be paid on the 15th of February.

The company's next dividend payment will be ₹25.00 per share, on the back of last year when the company paid a total of ₹65.00 to shareholders. Based on the last year's worth of payments, Accelya Solutions India has a trailing yield of 3.5% on the current stock price of ₹1836.45. If you buy this business for its dividend, you should have an idea of whether Accelya Solutions India's dividend is reliable and sustainable. So we need to investigate whether Accelya Solutions India can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Accelya Solutions India

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Accelya Solutions India is paying out an acceptable 63% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (88%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Accelya Solutions India'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 Accelya Solutions India 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Accelya Solutions India, with earnings per share up 8.0% on average over the last five years. Decent historical earnings per share growth suggests Accelya Solutions India has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Accelya Solutions India has lifted its dividend by approximately 0.8% a year on average.

Final Takeaway

Is Accelya Solutions India an attractive dividend stock, or better left on the shelf? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. Overall, it's hard to get excited about Accelya Solutions India from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Accelya Solutions India, you should know about the other risks facing this business. To help with this, we've discovered 1 warning sign for Accelya Solutions India that you should be aware of before investing in their shares.

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.