Do These 3 Checks Before Buying Allcargo Logistics Limited (NSE:ALLCARGO) For Its Upcoming Dividend

Readers hoping to buy Allcargo Logistics Limited (NSE:ALLCARGO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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. Accordingly, Allcargo Logistics investors that purchase the stock on or after the 18th of September will not receive the dividend, which will be paid on the 25th of September.

The company's next dividend payment will be ₹1.00 per share, and in the last 12 months, the company paid a total of ₹1.00 per share. Calculating the last year's worth of payments shows that Allcargo Logistics has a trailing yield of 1.5% on the current share price of ₹68.56. If you buy this business for its dividend, you should have an idea of whether Allcargo Logistics's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Allcargo Logistics

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. Allcargo Logistics paid out more than half (66%) of its earnings last year, which is a regular payout ratio for most companies. Allcargo Logistics paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Allcargo Logistics's earnings per share have plummeted approximately 33% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Allcargo Logistics has delivered 18% dividend growth per year on average over the past 10 years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

The Bottom Line

Should investors buy Allcargo Logistics for the upcoming dividend? We're not overly enthused to see Allcargo Logistics's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. It doesn't appear an outstanding opportunity, but could be worth a closer look.

So if you want to do more digging on Allcargo Logistics, you'll find it worthwhile knowing the risks that this stock faces. Be aware that Allcargo Logistics is showing 4 warning signs in our investment analysis, and 1 of those is a bit concerning...

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.