Only Three Days Left To Cash In On Agarwal Industrial's (NSE:AGARIND) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Agarwal Industrial Corporation Limited (NSE:AGARIND) is about to trade ex-dividend in the next three 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. Meaning, you will need to purchase Agarwal Industrial's shares before the 17th of September to receive the dividend, which will be paid on the 24th of October.

The company's next dividend payment will be ₹3.30 per share, on the back of last year when the company paid a total of ₹3.30 to shareholders. Based on the last year's worth of payments, Agarwal Industrial has a trailing yield of 0.8% on the current stock price of ₹431.75. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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. Agarwal Industrial is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.4% of its cash flow last year.

It's positive to see that Agarwal Industrial'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 Agarwal Industrial

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Agarwal Industrial's earnings per share have fallen at approximately 7.1% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Agarwal Industrial has delivered an average of 8.2% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Has Agarwal Industrial got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Agarwal Industrial from a dividend perspective.

In light of that, while Agarwal Industrial has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 4 warning signs with Agarwal Industrial and understanding them should be part of your investment process.

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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.