Be Sure To Check Out EIH Limited (NSE:EIHOTEL) Before It Goes Ex-Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that EIH Limited (NSE:EIHOTEL) is about to go ex-dividend in just three 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 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. Meaning, you will need to purchase EIH's shares before the 31st of July to receive the dividend, which will be paid on the 6th of September.
The company's next dividend payment will be ₹1.50 per share, and in the last 12 months, the company paid a total of ₹1.50 per share. Based on the last year's worth of payments, EIH has a trailing yield of 0.5% on the current stock price of ₹326.40. If you buy this business for its dividend, you should have an idea of whether EIH'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. EIH paid out just 15% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether EIH generated enough free cash flow to afford its dividend. Fortunately, it paid out only 36% of its free cash flow in the past year.
It's positive to see that EIH's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
View our latest analysis for EIH
Click here to see how much of its profit EIH 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. It's encouraging to see EIH has grown its earnings rapidly, up 51% a year for the past five years. EIH is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. EIH has delivered an average of 3.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because EIH is keeping back more of its profits to grow the business.
To Sum It Up
Has EIH got what it takes to maintain its dividend payments? EIH has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks EIH is facing. To help with this, we've discovered 1 warning sign for EIH 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.