Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Indian Renewable Energy Development Agency Limited (NSE:IREDA) is about to trade ex-dividend in the next 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Indian Renewable Energy Development Agency's shares on or after the 11th of September, you won't be eligible to receive the dividend, when it is paid on the 29th of October.
The company's next dividend payment will be ₹0.75 per share. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are 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. Indian Renewable Energy Development Agency is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Indian Renewable Energy Development Agency paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
View our latest analysis for Indian Renewable Energy Development Agency
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Indian Renewable Energy Development Agency, with earnings per share up 9.6% on average over the last five years.
Indian Renewable Energy Development Agency also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
This is Indian Renewable Energy Development Agency's first year of paying a regular dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.
Final Takeaway
Should investors buy Indian Renewable Energy Development Agency for the upcoming dividend? Indian Renewable Energy Development Agency has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. Overall, Indian Renewable Energy Development Agency looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
In light of that, while Indian Renewable Energy Development Agency has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 2 warning signs for Indian Renewable Energy Development Agency (1 doesn't sit too well with us) you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.