Here's Why We're Wary Of Buying Indigrid Infrastructure Trust's (NSE:INDIGRID) For Its Upcoming Dividend
Indigrid Infrastructure Trust (NSE:INDIGRID) stock is about to trade ex-dividend in day or so. 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. 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. Accordingly, Indigrid Infrastructure Trust investors that purchase the stock on or after the 11th of November will not receive the dividend, which will be paid on the 18th of November.
The company's next dividend payment will be ₹4.12 per share. Last year, in total, the company distributed ₹16.00 to shareholders. Based on the last year's worth of payments, Indigrid Infrastructure Trust stock has a trailing yield of around 9.3% on the current share price of ₹172.76. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Indigrid Infrastructure Trust paid out 123% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 166% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Cash is slightly more important than profit from a dividend perspective, but given Indigrid Infrastructure Trust's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
View our latest analysis for Indigrid Infrastructure Trust
Click here to see how much of its profit Indigrid Infrastructure Trust paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Indigrid Infrastructure Trust's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.
Indigrid Infrastructure Trust 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. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, Indigrid Infrastructure Trust has lifted its dividend by approximately 4.3% a year on average.
To Sum It Up
Has Indigrid Infrastructure Trust got what it takes to maintain its dividend payments? Earnings per share are effectively flat, plus Indigrid Infrastructure Trust's dividend is not well covered by either earnings or cash flow, which is not great. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Indigrid Infrastructure Trust.
So if you're still interested in Indigrid Infrastructure Trust despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 2 warning signs with Indigrid Infrastructure Trust and understanding them should be part of your investment process.
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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