Onward Technologies (NSE:ONWARDTEC) Could Be A Buy For Its Upcoming Dividend

It looks like Onward Technologies Limited (NSE:ONWARDTEC) is about to go ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Onward Technologies' shares on or after the 4th of July, you won't be eligible to receive the dividend, when it is paid on the 15th of August.

The company's next dividend payment will be ₹5.00 per share, and in the last 12 months, the company paid a total of ₹5.00 per share. Last year's total dividend payments show that Onward Technologies has a trailing yield of 1.4% on the current share price of ₹358.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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 Onward Technologies's payout ratio is modest, at just 42% of profit. 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. Thankfully its dividend payments took up just 40% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Onward Technologies'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.

See our latest analysis for Onward Technologies

Click here to see how much of its profit Onward Technologies 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. 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 Onward Technologies has grown its earnings rapidly, up 25% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Onward Technologies has delivered 20% dividend growth per year on average over the past nine years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Onward Technologies worth buying for its dividend? Onward Technologies has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Onward Technologies looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Onward Technologies for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Onward Technologies (of which 1 shouldn't be ignored!) you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.