It Might Not Be A Great Idea To Buy Accelya Solutions India Limited (NSE:ACCELYA) For Its Next Dividend
Accelya Solutions India Limited (NSE:ACCELYA) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is two business days 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Accelya Solutions India's shares before the 6th of February in order to receive the dividend, which the company will pay on the 25th of February.
The company's next dividend payment will be ₹45.00 per share. Last year, in total, the company distributed ₹85.00 to shareholders. Based on the last year's worth of payments, Accelya Solutions India has a trailing yield of 6.4% on the current stock price of ₹1321.60. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Accelya Solutions India distributed an unsustainably high 118% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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 company paid out 94% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
As Accelya Solutions India's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
See our latest analysis for Accelya Solutions India
Click here to see how much of its profit Accelya Solutions India paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Accelya Solutions India earnings per share are up 4.4% per annum over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Accelya Solutions India has delivered 14% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Accelya Solutions India got what it takes to maintain its dividend payments? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
So if you're still interested in Accelya Solutions India despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 1 warning sign for Accelya Solutions India that you should be aware of before investing in their shares.
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.