There's A Lot To Like About KPIT Technologies' (NSE:KPITTECH) Upcoming ₹4.60 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that KPIT Technologies Limited (NSE:KPITTECH) is about to go ex-dividend in just four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 KPIT Technologies' shares before the 9th of August in order to receive the dividend, which the company will pay on the 26th of September.

The company's upcoming dividend is ₹4.60 a share, following on from the last 12 months, when the company distributed a total of ₹6.70 per share to shareholders. Based on the last year's worth of payments, KPIT Technologies stock has a trailing yield of around 0.4% on the current share price of ₹1823.95. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether KPIT Technologies has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for KPIT Technologies

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see KPIT Technologies paying out a modest 31% of its earnings. 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. Luckily it paid out just 15% of its free 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.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see KPIT Technologies has grown its earnings rapidly, up 25% a year for the past five years. KPIT Technologies is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past five years, KPIT Technologies has increased its dividend at approximately 55% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Should investors buy KPIT Technologies for the upcoming dividend? It's great that KPIT Technologies is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. KPIT Technologies looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in KPIT Technologies for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for KPIT Technologies that we recommend you consider before investing in the business.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com