Transrail Lighting Limited (NSE:TRANSRAILL) Is About To Go Ex-Dividend, And It Pays A 0.5% Yield
Readers hoping to buy Transrail Lighting Limited (NSE:TRANSRAILL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 Transrail Lighting's shares on or after the 11th of September, you won't be eligible to receive the dividend, when it is paid on the 28th of October.
The company's next dividend payment will be ₹2.00 per share, on the back of last year when the company paid a total of ₹2.00 to shareholders. Based on the last year's worth of payments, Transrail Lighting stock has a trailing yield of around 0.5% on the current share price of ₹429.30. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Transrail Lighting can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Transrail Lighting is paying out just 6.7% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 2.7% of its cash flow 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.
Check out our latest analysis for Transrail Lighting
Click here to see how much of its profit Transrail Lighting paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 explains why we're not overly excited about Transrail Lighting's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Transrail Lighting 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.
Unfortunately Transrail Lighting 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
Should investors buy Transrail Lighting for the upcoming dividend? While it's not great to see that earnings per share are effectively flat over the one-year period we checked, at least the payout ratios are low and conservative. Overall, it's hard to get excited about Transrail Lighting from a dividend perspective.
Curious about whether Transrail Lighting has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.