Ador Welding Limited (NSE:ADOR) 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 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. In other words, investors can purchase Ador Welding's shares before the 30th of October in order to be eligible for the dividend, which will be paid on the 20th of November.
The company's next dividend payment will be ₹7.50 per share, on the back of last year when the company paid a total of ₹23.00 to shareholders. Based on the last year's worth of payments, Ador Welding stock has a trailing yield of around 1.8% on the current share price of ₹1295.30. If you buy this business for its dividend, you should have an idea of whether Ador Welding's dividend is reliable and sustainable. So we need to investigate whether Ador Welding can afford its dividend, and if the dividend could grow.
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. That's why it's good to see Ador Welding paying out a modest 49% of its earnings. 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. It paid out 94% of its free cash flow in the form of dividends last year, which is outside the comfort zone 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.
Ador Welding paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Ador Welding's ability to maintain its dividend.
See our latest analysis for Ador Welding
Click here to see how much of its profit Ador Welding 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Ador Welding's earnings per share have been growing at 11% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Ador Welding has increased its dividend at approximately 16% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
From a dividend perspective, should investors buy or avoid Ador Welding? We like that Ador Welding has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
While it's tempting to invest in Ador Welding for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Ador Welding and understanding them should be part of your investment process.
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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