Dreamfolks Services Limited (NSE:DREAMFOLKS) Passed Our Checks, And It's About To Pay A ₹1.50 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dreamfolks Services Limited (NSE:DREAMFOLKS) is about to trade ex-dividend in the next 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Dreamfolks Services' shares on or after the 17th of September will not receive the dividend, which will be paid on the 24th of October.

The company's next dividend payment will be ₹1.50 per share, on the back of last year when the company paid a total of ₹2.00 to shareholders. Based on the last year's worth of payments, Dreamfolks Services stock has a trailing yield of around 0.4% on the current share price of ₹501.25. 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 Dreamfolks Services can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Dreamfolks Services

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Dreamfolks Services is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. The good news is it paid out just 13% of its free cash flow in the last year.

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.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Dreamfolks Services has grown its earnings rapidly, up 36% a year for the past five years. Dreamfolks Services 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.

Unfortunately Dreamfolks Services has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Is Dreamfolks Services worth buying for its dividend? We love that Dreamfolks Services 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. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Dreamfolks Services is facing. For example, we've found 1 warning sign for Dreamfolks Services that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.