There's A Lot To Like About Sigma Solve's (NSE:SIGMA) Upcoming ₹0.50 Dividend

Readers hoping to buy Sigma Solve Limited (NSE:SIGMA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day 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 Sigma Solve's shares on or after the 13th of August, you won't be eligible to receive the dividend, when it is paid on the 19th of September.

The company's next dividend payment will be ₹0.50 per share. Last year, in total, the company distributed ₹0.50 to shareholders. Based on the last year's worth of payments, Sigma Solve stock has a trailing yield of around 0.1% on the current share price of ₹387.50. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Sigma Solve can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Sigma Solve

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sigma Solve paid out just 3.2% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 8.6% of its free cash flow last year.

It's positive to see that Sigma Solve'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 Sigma Solve paid out over the last 12 months.

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. 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 Sigma Solve has grown its earnings rapidly, up 64% a year for the past five years. Sigma Solve 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. Sigma Solve has delivered an average of 36% per year annual increase in its dividend, based on the past three years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Has Sigma Solve got what it takes to maintain its dividend payments? We love that Sigma Solve 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. Sigma Solve looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Sigma Solve 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 Sigma Solve (of which 1 is a bit concerning!) you should know about.

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.