Ramkrishna Forgings Limited (NSE:RKFORGE) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 29th of August to receive the dividend, which will be paid on the 7th of October.
Ramkrishna Forgings's next dividend payment will be ₹1.50 per share. Last year, in total, the company distributed ₹1.50 to shareholders. Last year's total dividend payments show that Ramkrishna Forgings has a trailing yield of 0.4% on the current share price of ₹332.7. If you buy this business for its dividend, you should have an idea of whether Ramkrishna Forgings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Ramkrishna Forgings is paying out just 4.6% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Ramkrishna Forgings'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Ramkrishna Forgings's earnings have been skyrocketing, up 58% per annum for the past five years. Ramkrishna Forgings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ramkrishna Forgings has delivered 4.6% dividend growth per year on average over the past 9 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
From a dividend perspective, should investors buy or avoid Ramkrishna Forgings? It's great that Ramkrishna Forgings is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Ramkrishna Forgings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Ramkrishna Forgings? See what the two 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.
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