We Wouldn't Be Too Quick To Buy Total Transport Systems Limited (NSE:TOTAL) Before It Goes Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Total Transport Systems Limited (NSE:TOTAL) is about to trade ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Total Transport Systems' shares before the 6th of September in order to be eligible for the dividend, which will be paid on the 14th of October.

The company's next dividend payment will be ₹0.50 per share. Last year, in total, the company distributed ₹0.50 to shareholders. Last year's total dividend payments show that Total Transport Systems has a trailing yield of 0.5% on the current share price of ₹98.29. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Total Transport Systems

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Total Transport Systems paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. Total Transport Systems paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see how much of its profit Total Transport Systems paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Total Transport Systems's earnings per share have plummeted approximately 54% a year over the previous five years.

We'd also point out that Total Transport Systems issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Total Transport Systems's dividend payments per share have declined at 31% per year on average over the past three years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Should investors buy Total Transport Systems for the upcoming dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. We think there are likely better opportunities out there.

However if you're still interested in Total Transport Systems as a potential investment, you should definitely consider some of the risks involved with Total Transport Systems. For example - Total Transport Systems has 3 warning signs we think you should be aware of.

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.