Advani Hotels & Resorts (India) Limited (NSE:ADVANIHOTR) is about to trade ex-dividend in the next 2 days. Ex-dividend means that investors that purchase the stock on or after the 26th of September will not receive this dividend, which will be paid on the 17th of October.
Advani Hotels & Resorts (India)'s next dividend payment will be ₹0.8 per share, on the back of last year when the company paid a total of ₹2.0 to shareholders. Calculating the last year's worth of payments shows that Advani Hotels & Resorts (India) has a trailing yield of 3.6% on the current share price of ₹55.3. If you buy this business for its dividend, you should have an idea of whether Advani Hotels & Resorts (India)'s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's 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. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth It could become a concern if earnings started to decline. 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. Fortunately, it paid out only 45% of its free cash flow in the past year.
It's positive to see that Advani Hotels & Resorts (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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Advani Hotels & Resorts (India) has grown its earnings rapidly, up 37% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Advani Hotels & Resorts (India) has delivered an average of 13% per year annual increase in its dividend, based on the past ten years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid Advani Hotels & Resorts (India)? Advani Hotels & Resorts (India)'s growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.
Keen to explore more data on Advani Hotels & Resorts (India)'s financial performance? Check out our visualisation 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.