The Ruby Mills Limited (NSE:RUBYMILLS) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 11th of September in order to be eligible for this dividend, which will be paid on the 20th of October.
Ruby Mills's next dividend payment will be ₹1.75 per share. Last year, in total, the company distributed ₹1.75 to shareholders. Last year's total dividend payments show that Ruby Mills has a trailing yield of 0.8% on the current share price of ₹233.25. If you buy this business for its dividend, you should have an idea of whether Ruby Mills's dividend is reliable and sustainable. So we need to investigate whether Ruby Mills can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ruby Mills is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Ruby Mills'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 shrinking earnings are tricky from a dividend perspective. 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 discomforted by Ruby Mills's 22% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ruby Mills has delivered 8.8% dividend growth per year on average over the past 10 years.
From a dividend perspective, should investors buy or avoid Ruby Mills? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Want to learn more about Ruby Mills? Here's a visualisation of its historical rate of revenue and earnings growth.
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 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.