We Wouldn't Be Too Quick To Buy Alphageo (India) Limited (NSE:ALPHAGEO) Before It Goes Ex-Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Alphageo (India) Limited (NSE:ALPHAGEO) is about to trade ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Alphageo (India)'s shares on or after the 11th of September, you won't be eligible to receive the dividend, when it is paid on the 18th of October.
The company's next dividend payment will be ₹5.00 per share. Last year, in total, the company distributed ₹5.00 to shareholders. Calculating the last year's worth of payments shows that Alphageo (India) has a trailing yield of 1.6% on the current share price of ₹323.85. If you buy this business for its dividend, you should have an idea of whether Alphageo (India)'s dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Alphageo (India) reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Alphageo (India) didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 33% of its free cash flow in the past year.
See our latest analysis for Alphageo (India)
Click here to see how much of its profit Alphageo (India) paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Alphageo (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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Alphageo (India) has lifted its dividend by approximately 9.6% a year on average.
Remember, you can always get a snapshot of Alphageo (India)'s financial health, by checking our visualisation of its financial health, here.
Final Takeaway
Has Alphageo (India) got what it takes to maintain its dividend payments? It's hard to get used to Alphageo (India) paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Alphageo (India) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Although, if you're still interested in Alphageo (India) and want to know more, you'll find it very useful to know what risks this stock faces. For instance, we've identified 4 warning signs for Alphageo (India) (2 are a bit concerning) 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.