Indraprastha Medical Corporation Limited (NSE:INDRAMEDCO) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 12th of September in order to receive the dividend, which the company will pay on the 30th of October.
Indraprastha Medical's next dividend payment will be ₹1.60 per share. Last year, in total, the company distributed ₹1.60 to shareholders. Last year's total dividend payments show that Indraprastha Medical has a trailing yield of 4.2% on the current share price of ₹38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. Fortunately Indraprastha Medical's payout ratio is modest, at just 48% of profit. 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. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.
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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Indraprastha Medical's earnings per share have been shrinking at 3.0% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Indraprastha Medical has lifted its dividend by approximately 0.6% a year on average.
The Bottom Line
Has Indraprastha Medical got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, it's hard to get excited about Indraprastha Medical from a dividend perspective.
Curious about whether Indraprastha Medical has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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