Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see India Motor Parts and Accessories Limited (NSE:IMPAL) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 9th of September in order to be eligible for this dividend, which will be paid on the 16th of October.
India Motor Parts and Accessories's upcoming dividend is ₹8.00 a share, following on from the last 12 months, when the company distributed a total of ₹16.00 per share to shareholders. Calculating the last year's worth of payments shows that India Motor Parts and Accessories has a trailing yield of 2.0% on the current share price of ₹807.3. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are 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. That's why it's good to see India Motor Parts and Accessories paying out a modest 35% of its earnings. 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. Dividends consumed 68% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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.
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. This is why it's a relief to see India Motor Parts and Accessories earnings per share are up 7.7% per annum over the last five years. Decent historical earnings per share growth suggests India Motor Parts and Accessories has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, India Motor Parts and Accessories has increased its dividend at approximately 10% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Has India Motor Parts and Accessories got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that India Motor Parts and Accessories is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Curious about whether India Motor Parts and Accessories has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.