Samvardhana Motherson International (NSE:MOTHERSON) Could Be A Buy For Its Upcoming Dividend

Samvardhana Motherson International Limited (NSE:MOTHERSON) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days 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 can take two business days or more to settle. Accordingly, Samvardhana Motherson International investors that purchase the stock on or after the 14th of July will not receive the dividend, which will be paid on the 29th of August.

The company's next dividend payment will be ₹0.25 per share, and in the last 12 months, the company paid a total of ₹0.70 per share. Based on the last year's worth of payments, Samvardhana Motherson International has a trailing yield of 0.4% on the current stock price of ₹142.80. 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 investigate whether Samvardhana Motherson International can afford its dividend, and if the dividend could grow.

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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. Samvardhana Motherson International is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Samvardhana Motherson International generated enough free cash flow to afford its dividend. It paid out 11% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Samvardhana Motherson International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for Samvardhana Motherson International

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Samvardhana Motherson International's earnings have been skyrocketing, up 30% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Samvardhana Motherson International looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Samvardhana Motherson International dividends are largely the same as they were 10 years ago.

To Sum It Up

Is Samvardhana Motherson International worth buying for its dividend? It's great that Samvardhana Motherson International is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for Samvardhana Motherson International that we recommend you consider before investing in the business.

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.