U.S. Markets open in 9 hrs 11 mins

Is It Smart To Buy Fiem Industries Limited (NSE:FIEMIND) Before It Goes Ex-Dividend?

Simply Wall St

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Fiem Industries Limited (NSE:FIEMIND) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 12th of September to receive the dividend, which will be paid on the 15th of October.

Fiem Industries's next dividend payment will be ₹4.00 per share, and in the last 12 months, the company paid a total of ₹12.00 per share. Based on the last year's worth of payments, Fiem Industries has a trailing yield of 3.3% on the current stock price of ₹369.95. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Fiem Industries has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Fiem Industries

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. Fortunately Fiem Industries's payout ratio is modest, at just 28% of profit. A useful secondary check can be to evaluate whether Fiem Industries generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Fiem Industries'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.

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

NSEI:FIEMIND 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. This is why it's a relief to see Fiem Industries earnings per share are up 6.6% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Fiem Industries has delivered 17% dividend growth per year on average over the past 10 years. 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.

To Sum It Up

From a dividend perspective, should investors buy or avoid Fiem Industries? Earnings per share growth has been growing somewhat, and Fiem Industries is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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 Fiem Industries is halfway there. Fiem Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Ever wonder what the future holds for Fiem Industries? See what the three 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.