It looks like Sunflag Iron and Steel Company Limited (NSE:SUNFLAG) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 5th of September will not receive the dividend, which will be paid on the 27th of October.
Sunflag Iron and Steel's next dividend payment will be ₹0.50 per share, on the back of last year when the company paid a total of ₹0.50 to shareholders. Calculating the last year's worth of payments shows that Sunflag Iron and Steel has a trailing yield of 1.9% on the current share price of ₹26.25. If you buy this business for its dividend, you should have an idea of whether Sunflag Iron and Steel's dividend is reliable and sustainable. So we need to investigate whether Sunflag Iron and Steel 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. Sunflag Iron and Steel has a low and conservative payout ratio of just 12% of its income after tax.
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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Sunflag Iron and Steel's earnings have been skyrocketing, up 26% per annum for the past five years. Sunflag Iron and Steel looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Sunflag Iron and Steel dividends are largely the same as they were ten years ago.
From a dividend perspective, should investors buy or avoid Sunflag Iron and Steel? Sunflag Iron and Steel has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
Curious about whether Sunflag Iron and Steel has been able to consistently generate growth? Here's a chart of its historical 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.
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