Dividend Investors: Don't Be Too Quick To Buy Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) For Its Upcoming Dividend

Crompton Greaves Consumer Electricals Limited (NSE:CROMPTON) stock is about to trade ex-dividend in 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. 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, Crompton Greaves Consumer Electricals investors that purchase the stock on or after the 24th of July will not receive the dividend, which will be paid on the 6th of September.

The company's next dividend payment will be ₹3.00 per share, on the back of last year when the company paid a total of ₹3.00 to shareholders. Based on the last year's worth of payments, Crompton Greaves Consumer Electricals has a trailing yield of 1.2% on the current stock price of ₹256.50. If you buy this business for its dividend, you should have an idea of whether Crompton Greaves Consumer Electricals's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Crompton Greaves Consumer Electricals reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Crompton Greaves Consumer Electricals 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 distributed 30% of its free cash flow as dividends, a comfortable payout level for most companies.

View our latest analysis for Crompton Greaves Consumer Electricals

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Crompton Greaves Consumer Electricals reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last nine years, Crompton Greaves Consumer Electricals has lifted its dividend by approximately 8.0% a year on average.

Remember, you can always get a snapshot of Crompton Greaves Consumer Electricals's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Crompton Greaves Consumer Electricals? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Crompton Greaves Consumer Electricals don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 1 warning sign for Crompton Greaves Consumer Electricals and you should be aware of this before buying any shares.

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.