We Wouldn't Be Too Quick To Buy Radiant Cash Management Services Limited (NSE:RADIANTCMS) Before It Goes Ex-Dividend

Radiant Cash Management Services Limited (NSE:RADIANTCMS) is about to trade ex-dividend in the next 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Radiant Cash Management Services' shares on or after the 10th of September will not receive the dividend, which will be paid on the 16th of October.

The company's next dividend payment will be ₹2.50 per share. Last year, in total, the company distributed ₹2.50 to shareholders. Based on the last year's worth of payments, Radiant Cash Management Services stock has a trailing yield of around 6.0% on the current share price of ₹41.78. If you buy this business for its dividend, you should have an idea of whether Radiant Cash Management Services's dividend is reliable and sustainable. As a result, readers should always check whether Radiant Cash Management Services has been able to grow its dividends, or if the dividend might be cut.

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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. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in 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. Radiant Cash Management Services paid out more free cash flow than it generated - 186%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Radiant Cash Management Services paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Radiant Cash Management Services's ability to maintain its dividend.

See our latest analysis for Radiant Cash Management Services

Click here to see how much of its profit Radiant Cash Management Services paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Radiant Cash Management Services's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Radiant Cash Management Services has delivered 5.7% dividend growth per year on average over the past four years.

Final Takeaway

From a dividend perspective, should investors buy or avoid Radiant Cash Management Services? Earnings per share have not grown and Radiant Cash Management Services's profit payout ratio looks reasonable. However, it paid out a disconcertingly high percentage of its cashflow, which is a worry. Bottom line: Radiant Cash Management Services has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Radiant Cash Management Services don't faze you, it's worth being mindful of the risks involved with this business. Be aware that Radiant Cash Management Services is showing 3 warning signs in our investment analysis, and 1 of those is significant...

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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.