Do These 3 Checks Before Buying Texmaco Rail & Engineering Limited (NSE:TEXRAIL) For Its Upcoming Dividend

Readers hoping to buy Texmaco Rail & Engineering Limited (NSE:TEXRAIL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Texmaco Rail & Engineering investors that purchase the stock on or after the 22nd of September will not receive the dividend, which will be paid on the 30th of October.

The company’s upcoming dividend is ₹0.10 a share, following on from the last 12 months, when the company distributed a total of ₹0.10 per share to shareholders. Calculating the last year’s worth of payments shows that Texmaco Rail & Engineering has a trailing yield of 0.2% on the current share price of ₹50. 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 Texmaco Rail & Engineering has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Texmaco Rail & Engineering

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. Texmaco Rail & Engineering reported a loss last year, so it’s not great to see that it has continued paying a dividend. With the recent loss, it’s important to check if the business generated enough cash to pay its dividend. If Texmaco Rail & Engineering didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

Click here to see how much of its profit Texmaco Rail & Engineering paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Texmaco Rail & Engineering was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

We’d also point out that Texmaco Rail & Engineering 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.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Texmaco Rail & Engineering has seen its dividend decline 21% per annum on average over the past 10 years, which is not great to see. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Get our latest analysis on Texmaco Rail & Engineering’s balance sheet health here.

Final Takeaway

Should investors buy Texmaco Rail & Engineering for the upcoming dividend? We’re a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.

Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Texmaco Rail & Engineering. For example, Texmaco Rail & Engineering has 3 warning signs (and 2 which shouldn’t be ignored) we think you should know about.

If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.