RailTel Corporation of India Limited (NSE:RAILTEL) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Meaning, you will need to purchase RailTel Corporation of India's shares before the 20th of January to receive the dividend, which will be paid on the 9th of February.
The company's upcoming dividend is ₹1.75 a share, following on from the last 12 months, when the company distributed a total of ₹2.40 per share to shareholders. Based on the last year's worth of payments, RailTel Corporation of India has a trailing yield of 2.9% on the current stock price of ₹119.85. 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 check whether the dividend payments are covered, and if earnings are growing.
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 38% of profit. A useful secondary check can be to evaluate whether RailTel Corporation of India generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. For this reason, we're glad to see RailTel Corporation of India's earnings per share have risen 13% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.
Given that RailTel Corporation of India has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
Has RailTel Corporation of India got what it takes to maintain its dividend payments? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
In light of that, while RailTel Corporation of India has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for RailTel Corporation of India and you should be aware of it before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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. 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.