Readers hoping to buy Pitti Engineering Limited (NSE:PITTIENG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Pitti Engineering investors that purchase the stock on or after the 15th of September will not receive the dividend, which will be paid on the 23rd of October.
The company’s next dividend payment will be ₹0.85 per share, and in the last 12 months, the company paid a total of ₹2.03 per share. Based on the last year’s worth of payments, Pitti Engineering stock has a trailing yield of around 0.6% on the current share price of ₹324.95. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Pitti Engineering
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Pitti Engineering is paying out just 9.4% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.
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.
Click here to see how much of its profit Pitti Engineering paid out over the last 12 months.
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. That’s why it’s comforting to see Pitti Engineering’s earnings have been skyrocketing, up 61% per annum for the past five years. Pitti Engineering is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Pitti Engineering has delivered an average of 3.0% per year annual increase in its dividend, based on the past 10 years of dividend payments. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Should investors buy Pitti Engineering for the upcoming dividend? Pitti Engineering has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There’s a lot to like about Pitti Engineering, and we would prioritise taking a closer look at it.
While it’s tempting to invest in Pitti Engineering for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we’ve spotted 3 warning signs for Pitti Engineering (of which 1 is a bit unpleasant!) you should know about.
Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.
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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.
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