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Should You Buy Cadsys (India) Limited (NSE:CADSYS) For Its Upcoming Dividend In 3 Days?

Simply Wall St

Readers hoping to buy Cadsys (India) Limited (NSE:CADSYS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 12th of September, you won't be eligible to receive this dividend, when it is paid on the 24th of October.

Cadsys (India)'s next dividend payment will be ₹1.25 per share, on the back of last year when the company paid a total of ₹1.25 to shareholders. Based on the last year's worth of payments, Cadsys (India) has a trailing yield of 2.8% on the current stock price of ₹44. 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 investigate whether Cadsys (India) can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Cadsys (India)

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. Cadsys (India) is paying out just 7.6% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

Click here to see how much of its profit Cadsys (India) paid out over the last 12 months.

NSEI:CADSYS Historical Dividend Yield, September 8th 2019

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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Cadsys (India)'s earnings have been skyrocketing, up 25% per annum for the past five years.

Cadsys (India) 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.

Unfortunately Cadsys (India) has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

Is Cadsys (India) worth buying for its dividend? We love that Cadsys (India) is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

Want to learn more about Cadsys (India)'s dividend performance? Check out this visualisation of its historical revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 editorial-team@simplywallst.com. 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.