Three Days Left To Buy ESAB India Limited (NSE:ESABINDIA) Before The Ex-Dividend Date
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that ESAB India Limited (NSE:ESABINDIA) is about to go ex-dividend in just three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, ESAB India investors that purchase the stock on or after the 23rd of July will not receive the dividend, which will be paid on the 28th of August.
The company's next dividend payment will be ₹25.00 per share, on the back of last year when the company paid a total of ₹75.00 to shareholders. Calculating the last year's worth of payments shows that ESAB India has a trailing yield of 1.3% on the current share price of ₹5653.00. 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 ESAB India 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. ESAB India paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether ESAB India generated enough free cash flow to afford its dividend. The company paid out 95% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
ESAB India 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 ESAB India to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Check out our latest analysis for ESAB India
Click here to see how much of its profit ESAB India 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. It's encouraging to see ESAB India has grown its earnings rapidly, up 28% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, ESAB India has lifted its dividend by approximately 54% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
From a dividend perspective, should investors buy or avoid ESAB India? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 95% of its cashflow, which is uncomfortably high. In summary, it's hard to get excited about ESAB India from a dividend perspective.
So if you want to do more digging on ESAB India, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 1 warning sign for ESAB India you should be aware of.
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.