Vindhya Telelinks Limited (NSE:VINDHYATEL) Looks Interesting, And It's About To Pay A Dividend

Vindhya Telelinks Limited (NSE:VINDHYATEL) stock is about to trade ex-dividend in three 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Vindhya Telelinks' shares on or after the 26th of July will not receive the dividend, which will be paid on the 1st of September.

The company's next dividend payment will be ₹15.00 per share, and in the last 12 months, the company paid a total of ₹15.00 per share. Calculating the last year's worth of payments shows that Vindhya Telelinks has a trailing yield of 0.6% on the current share price of ₹2673.20. 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 Vindhya Telelinks can afford its dividend, and if the dividend could grow.

View our latest analysis for Vindhya Telelinks

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. Vindhya Telelinks paid out just 6.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 4.5% of its free cash flow last year.

It's positive to see that Vindhya Telelinks'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 Vindhya Telelinks paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Vindhya Telelinks's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Vindhya Telelinks has increased its dividend at approximately 22% a year on average.

To Sum It Up

Is Vindhya Telelinks worth buying for its dividend? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but Vindhya Telelinks is halfway there. Vindhya Telelinks looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Vindhya Telelinks has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Vindhya Telelinks has 2 warning signs (and 1 which is significant) we think you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.

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