Surya Roshni (NSE:SURYAROSNI) Could Be A Buy For Its Upcoming Dividend

Surya Roshni Limited (NSE:SURYAROSNI) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a 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. Therefore, if you purchase Surya Roshni's shares on or after the 21st of August, you won't be eligible to receive the dividend, when it is paid on the 15th of October.

The company's upcoming dividend is ₹2.50 a share, following on from the last 12 months, when the company distributed a total of ₹5.00 per share to shareholders. Calculating the last year's worth of payments shows that Surya Roshni has a trailing yield of 2.2% on the current share price of ₹222.98. If you buy this business for its dividend, you should have an idea of whether Surya Roshni's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Surya Roshni paying out a modest 38% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 50% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Surya Roshni'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 Surya Roshni

Click here to see how much of its profit Surya Roshni paid out over the last 12 months.

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 fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Surya Roshni's earnings per share have risen 14% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Surya Roshni has delivered 35% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Should investors buy Surya Roshni for the upcoming dividend? Surya Roshni has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

Curious about whether Surya Roshni has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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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.