Just Two Days Till Tips Music Limited (NSE:TIPSMUSIC) Will Be Trading Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tips Music Limited (NSE:TIPSMUSIC) is about to trade ex-dividend in the next two 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 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. In other words, investors can purchase Tips Music's shares before the 22nd of October in order to be eligible for the dividend, which will be paid on the 12th of November.

The company's next dividend payment will be ₹6.50 per share. Last year, in total, the company distributed ₹13.00 to shareholders. Based on the last year's worth of payments, Tips Music stock has a trailing yield of around 1.7% on the current share price of ₹746.90. If you buy this business for its dividend, you should have an idea of whether Tips Music's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year Tips Music paid out 101% of its profits as dividends to shareholders, suggesting the dividend is not well covered by 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. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Tips Music's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

View our latest analysis for Tips Music

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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Tips Music has grown its earnings rapidly, up 40% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Tips Music has lifted its dividend by approximately 63% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Has Tips Music got what it takes to maintain its dividend payments? Tips Music has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Tips Music's dividend merits.

However if you're still interested in Tips Music as a potential investment, you should definitely consider some of the risks involved with Tips Music. Case in point: We've spotted 1 warning sign for Tips Music you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.