RailTel Corporation of India Limited (NSE:RAILTEL) Passed Our Checks, And It's About To Pay A ₹1.00 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 RailTel Corporation of India Limited (NSE:RAILTEL) is about to go ex-dividend in just three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Therefore, if you purchase RailTel Corporation of India's shares on or after the 6th of November, you won't be eligible to receive the dividend, when it is paid on the 27th of November.

The company's upcoming dividend is ₹1.00 a share, following on from the last 12 months, when the company distributed a total of ₹2.85 per share to shareholders. Looking at the last 12 months of distributions, RailTel Corporation of India has a trailing yield of approximately 0.7% on its current stock price of ₹421.55. If you buy this business for its dividend, you should have an idea of whether RailTel Corporation of India's dividend is reliable and sustainable. So we need to investigate whether RailTel Corporation of India can afford its dividend, and if the dividend could grow.

Check out our latest analysis for RailTel Corporation of India

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 RailTel Corporation of India's payout ratio is modest, at just 35% of profit. A useful secondary check can be to evaluate whether RailTel Corporation of India generated enough free cash flow to afford its dividend. The company paid out 104% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

While RailTel Corporation of India's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to RailTel Corporation of India's ability to maintain its dividend.

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. Fortunately for readers, RailTel Corporation of India's earnings per share have been growing at 19% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, RailTel Corporation of India has lifted its dividend by approximately 9.3% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is RailTel Corporation of India an attractive dividend stock, or better left on the shelf? We like that RailTel Corporation of India has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in RailTel Corporation of India for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for RailTel Corporation of India you should be aware of.

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.