Just Three Days Till NMDC Limited (NSE:NMDC) Will Be Trading Ex-Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see NMDC Limited (NSE:NMDC) is about to trade ex-dividend in the next 3 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase NMDC's shares on or after the 5th of October will not receive the dividend, which will be paid on the 28th of October.
The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹3.50 to shareholders. Based on the last year's worth of payments, NMDC has a trailing yield of 4.6% on the current stock price of ₹76.54. 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 check whether the dividend payments are covered, and if earnings are 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. That's why it's good to see NMDC paying out a modest 41% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 169% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While NMDC's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were NMDC to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for NMDC
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at NMDC, with earnings per share up 3.5% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. NMDC's dividend payments are broadly unchanged compared to where they were 10 years ago.
To Sum It Up
Is NMDC worth buying for its dividend? NMDC delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 169% of its cash flow over the last year, which is a mediocre outcome. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
So if you want to do more digging on NMDC, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 1 warning sign for NMDC 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.