Ajmera Realty & Infra India (NSE:AJMERA) Could Be A Buy For Its Upcoming Dividend
Readers hoping to buy Ajmera Realty & Infra India Limited (NSE:AJMERA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Ajmera Realty & Infra India's shares before the 16th of September in order to be eligible for the dividend, which will be paid on the 23rd of October.
The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹1.00 to shareholders. Calculating the last year's worth of payments shows that Ajmera Realty & Infra India has a trailing yield of 0.9% on the current share price of ₹116.75. 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 Ajmera Realty & Infra India can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ajmera Realty & Infra India has a low and conservative payout ratio of just 13% of its income after tax. A useful secondary check can be to evaluate whether Ajmera Realty & Infra India generated enough free cash flow to afford its dividend. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Ajmera Realty & Infra India'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 Ajmera Realty & Infra India
Click here to see how much of its profit Ajmera Realty & Infra India paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Ajmera Realty & Infra India has grown its earnings rapidly, up 36% a year 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. 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.
Ajmera Realty & Infra India 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Ajmera Realty & Infra India has increased its dividend at approximately 3.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Ajmera Realty & Infra India is keeping back more of its profits to grow the business.
To Sum It Up
From a dividend perspective, should investors buy or avoid Ajmera Realty & Infra India? Ajmera Realty & Infra India 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.
While it's tempting to invest in Ajmera Realty & Infra India for the dividends alone, you should always be mindful of the risks involved. For example - Ajmera Realty & Infra India has 1 warning sign we think you should be aware of.
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.