Why You Might Be Interested In Sree Rayalaseema Hi-Strength Hypo Limited (NSE:SRHHYPOLTD) For Its Upcoming Dividend
Sree Rayalaseema Hi-Strength Hypo Limited (NSE:SRHHYPOLTD) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Sree Rayalaseema Hi-Strength Hypo's shares on or after the 18th of September, you won't be eligible to receive the dividend, when it is paid on the 23rd of October.
The company's upcoming dividend is ₹3.00 a share, following on from the last 12 months, when the company distributed a total of ₹3.00 per share to shareholders. Based on the last year's worth of payments, Sree Rayalaseema Hi-Strength Hypo stock has a trailing yield of around 0.6% on the current share price of ₹523.80. If you buy this business for its dividend, you should have an idea of whether Sree Rayalaseema Hi-Strength Hypo's dividend is reliable and sustainable. So we need to investigate whether Sree Rayalaseema Hi-Strength Hypo 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. Sree Rayalaseema Hi-Strength Hypo is paying out just 5.6% 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. It paid out 16% of its free cash flow as dividends last year, which is conservatively low.
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.
See our latest analysis for Sree Rayalaseema Hi-Strength Hypo
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Sree Rayalaseema Hi-Strength Hypo earnings per share are up 8.8% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sree Rayalaseema Hi-Strength Hypo has delivered 7.2% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
Is Sree Rayalaseema Hi-Strength Hypo worth buying for its dividend? Earnings per share have been growing moderately, and Sree Rayalaseema Hi-Strength Hypo is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Sree Rayalaseema Hi-Strength Hypo is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.
So while Sree Rayalaseema Hi-Strength Hypo looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, Sree Rayalaseema Hi-Strength Hypo has 3 warning signs (and 1 which can't be ignored) we think you should know about.
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.