Should You Buy The Shipping Corporation of India Limited (NSE:SCI) For Its Upcoming 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 The Shipping Corporation of India Limited (NSE:SCI) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Shipping Corporation of India's shares before the 4th of September to receive the dividend, which will be paid on the 19th of October.

The company's upcoming dividend is ₹6.59 a share, following on from the last 12 months, when the company distributed a total of ₹6.59 per share to shareholders. Based on the last year's worth of payments, Shipping Corporation of India has a trailing yield of 3.1% on the current stock price of ₹211.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Shipping Corporation of India's payout ratio is modest, at just 36% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 4.2% 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.

Check out our latest analysis for Shipping Corporation of India

Click here to see how much of its profit Shipping Corporation of India paid out over the last 12 months.

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. That's why it's comforting to see Shipping Corporation of India's earnings have been skyrocketing, up 22% per annum for the past five years. Shipping Corporation of India is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past five years, Shipping Corporation of India has increased its dividend at approximately 54% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Has Shipping Corporation of India got what it takes to maintain its dividend payments? It's great that Shipping Corporation of India is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Shipping Corporation of India looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Shipping Corporation of India for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Shipping Corporation of India you should know about.

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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.