Why You Might Be Interested In Newgen Software Technologies Limited (NSE:NEWGEN) For Its Upcoming Dividend
Readers hoping to buy Newgen Software Technologies Limited (NSE:NEWGEN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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 Newgen Software Technologies' shares on or after the 17th of July, you won't be eligible to receive the dividend, when it is paid on the 23rd of August.
The company's next dividend payment will be ₹6.00 per share, on the back of last year when the company paid a total of ₹6.00 to shareholders. Based on the last year's worth of payments, Newgen Software Technologies has a trailing yield of 1.2% on the current stock price of ₹517.20. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Newgen Software Technologies's payout ratio is modest, at just 28% of profit. 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. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
View our latest analysis for Newgen Software Technologies
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Newgen Software Technologies's earnings per share have risen 18% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Newgen Software Technologies has delivered an average of 25% per year annual increase in its dividend, based on the past eight years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Newgen Software Technologies worth buying for its dividend? Newgen Software Technologies has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past eight years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
So while Newgen Software Technologies looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Newgen Software Technologies you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.