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Exide Industries Limited (NSE:EXIDEIND)'s Could Be A Buy For Its Upcoming Dividend

Simply Wall St

Readers hoping to buy Exide Industries Limited (NSE:EXIDEIND) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 18th of November will not receive this dividend, which will be paid on the 6th of December.

Exide Industries's upcoming dividend is ₹1.6 a share, following on from the last 12 months, when the company distributed a total of ₹2.4 per share to shareholders. Last year's total dividend payments show that Exide Industries has a trailing yield of 1.3% on the current share price of ₹187.35. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Exide Industries has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Exide Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Exide Industries has a low and conservative payout ratio of just 24% of its income after tax. A useful secondary check can be to evaluate whether Exide Industries generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 14% of its cash flow last year.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NSEI:EXIDEIND Historical Dividend Yield, November 14th 2019

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Exide Industries, with earnings per share up 9.4% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Exide Industries has lifted its dividend by approximately 12% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Exide Industries worth buying for its dividend? Earnings per share have been growing moderately, and Exide Industries is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Exide Industries is halfway there. Exide Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Ever wonder what the future holds for Exide Industries? See what the 20 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top 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.