Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see RHI Magnesita India Limited (NSE:RHIM) is about to trade ex-dividend in the next 3 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase RHI Magnesita India's shares before the 11th of September in order to be eligible for the dividend, which will be paid on the 29th of October.
The company's next dividend payment will be ₹2.50 per share, on the back of last year when the company paid a total of ₹2.50 to shareholders. Calculating the last year's worth of payments shows that RHI Magnesita India has a trailing yield of 0.7% on the current share price of ₹371.35. If you buy this business for its dividend, you should have an idea of whether RHI Magnesita India's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. RHI Magnesita India paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 19% of its free cash flow last year.
Check out our latest analysis for RHI Magnesita India
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. RHI Magnesita India reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, RHI Magnesita India has lifted its dividend by approximately 5.6% a year on average.
We update our analysis on RHI Magnesita India every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
From a dividend perspective, should investors buy or avoid RHI Magnesita India? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with RHI Magnesita India. Case in point: We've spotted 1 warning sign for RHI Magnesita India 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.