VA Tech Wabag (NSE:WABAG) Could Be A Buy For Its Upcoming Dividend

It looks like VA Tech Wabag Limited (NSE:WABAG) is about to go ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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 VA Tech Wabag's shares before the 5th of August to receive the dividend, which will be paid on the 10th of September.

The company's next dividend payment will be ₹4.00 per share, on the back of last year when the company paid a total of ₹4.00 to shareholders. Last year's total dividend payments show that VA Tech Wabag has a trailing yield of 0.3% on the current share price of ₹1585.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. VA Tech Wabag paid out just 8.4% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

View our latest analysis for VA Tech Wabag

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see VA Tech Wabag has grown its earnings rapidly, up 23% a year for the past five years. VA Tech Wabag earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. VA Tech Wabag's dividend payments are broadly unchanged compared to where they were 10 years ago.

The Bottom Line

Should investors buy VA Tech Wabag for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating VA Tech Wabag more closely.

Curious what other investors think of VA Tech Wabag? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.