It looks like Sandhar Technologies Limited ( NSE:SANDHAR ) is about to go 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 9th of October.
Sandhar Technologies's next dividend payment will be ₹1.25 per share, and in the last 12 months, the company paid a total of ₹2.50 per share. Last year's total dividend payments show that Sandhar Technologies has a trailing yield of 1.1% on the current share price of ₹233.65. 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! As a result, readers should always check whether Sandhar Technologies has been able to grow its dividends, or if the dividend might be cut.
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. Sandhar Technologies is paying out just 17% 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 an unsustainably high 311% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Sandhar Technologies intends to continue funding this dividend, or if it could be forced to the payment.
Sandhar Technologies paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Sandhar Technologies to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Sandhar Technologies's earnings per share have risen 17% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
We'd also point out that Sandhar Technologies issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Given that Sandhar Technologies has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
Is Sandhar Technologies worth buying for its dividend? We like that Sandhar Technologies has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Sandhar Technologies's dividend merits.
Want to learn more about Sandhar Technologies? Here's a visualisation of its historical rate of 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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