Is It Smart To Buy NIIT Learning Systems Limited (NSE:NIITMTS) Before It Goes Ex-Dividend?

Simply Wall St · 09/01 02:41

It looks like NIIT Learning Systems Limited (NSE:NIITMTS) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day 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 takes at least two business day to settle. Thus, you can purchase NIIT Learning Systems' shares before the 5th of September in order to receive the dividend, which the company will pay on the 24th of October.

The company's upcoming dividend is ₹2.75 a share, following on from the last 12 months, when the company distributed a total of ₹5.50 per share to shareholders. Last year's total dividend payments show that NIIT Learning Systems has a trailing yield of 1.1% on the current share price of ₹494.35. 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 investigate whether NIIT Learning Systems can afford its dividend, and if the dividend could grow.

See our latest analysis for NIIT Learning Systems

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. That's why it's good to see NIIT Learning Systems paying out a modest 33% 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. The good news is it paid out just 15% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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NSEI:NIITMTS Historic Dividend September 1st 2024

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see NIIT Learning Systems's earnings have been skyrocketing, up 38% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Unfortunately NIIT Learning Systems has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Has NIIT Learning Systems got what it takes to maintain its dividend payments? NIIT Learning Systems has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. NIIT Learning Systems looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks NIIT Learning Systems is facing. Case in point: We've spotted 2 warning signs for NIIT Learning Systems 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.