Is It Worth Considering Container Corporation of India Limited (NSE:CONCOR) For Its Upcoming Dividend?
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 Container Corporation of India Limited (NSE:CONCOR) is about to go ex-dividend in just 3 days. The ex-dividend date is commonly two business days 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Container Corporation of India's shares before the 11th of November in order to be eligible for the dividend, which will be paid on the 2nd of December.
The company's next dividend payment will be ₹1.90 per share, and in the last 12 months, the company paid a total of ₹8.60 per share. Based on the last year's worth of payments, Container Corporation of India has a trailing yield of 2.0% on the current stock price of ₹439.80. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Fortunately Container Corporation of India's payout ratio is modest, at just 49% of profit. A useful secondary check can be to evaluate whether Container Corporation of India generated enough free cash flow to afford its dividend. Container Corporation of India paid out more free cash flow than it generated - 172%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Container Corporation of India does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While Container Corporation of India's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Container Corporation of India's ability to maintain its dividend.
See our latest analysis for Container Corporation of India
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Container Corporation of India's earnings per share have been growing at 19% a year for the past 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Container Corporation of India has increased its dividend at approximately 9.5% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid Container Corporation of India? We like that Container Corporation of India 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. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
In light of that, while Container Corporation of India has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Container Corporation of India has 1 warning sign we think you should be aware of.
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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