Should You Buy Larsen & Toubro Infotech Limited (NSE:LTI) For Its Upcoming Dividend?

Readers hoping to buy Larsen & Toubro Infotech Limited (NSE:LTI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 9th of July in order to be eligible for this dividend, which will be paid on the 17th of August.

Larsen & Toubro Infotech's upcoming dividend is ₹15.50 a share, following on from the last 12 months, when the company distributed a total of ₹28.00 per share to shareholders. Looking at the last 12 months of distributions, Larsen & Toubro Infotech has a trailing yield of approximately 1.4% on its current stock price of ₹1978.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Larsen & Toubro Infotech

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. Fortunately Larsen & Toubro Infotech's payout ratio is modest, at just 32% 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. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Larsen & Toubro Infotech'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Larsen & Toubro Infotech's earnings per share have been growing at 13% 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. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, four years ago, Larsen & Toubro Infotech has lifted its dividend by approximately 20% 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 Larsen & Toubro Infotech for the upcoming dividend? We love that Larsen & Toubro Infotech is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Larsen & Toubro Infotech looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Larsen & Toubro Infotech for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Larsen & Toubro Infotech that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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