There's A Lot To Like About Electrosteel Castings' (NSE:ELECTCAST) Upcoming ₹0.90 Dividend

Jul 27, 2023

Stock Analysis

Electrosteel Castings Limited (NSE:ELECTCAST) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day 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 Electrosteel Castings' shares before the 4th of September to receive the dividend, which will be paid on the 11th of October.

The company's next dividend payment will be ₹0.90 per share. Last year, in total, the company distributed ₹0.90 to shareholders. Based on the last year's worth of payments, Electrosteel Castings has a trailing yield of 1.3% on the current stock price of ₹68.8. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Electrosteel Castings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Electrosteel Castings is paying out just 17% 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 18% of its cash flow last year.

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.

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

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Electrosteel Castings, with earnings per share up 7.4% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Electrosteel Castings has delivered an average of 6.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Should investors buy Electrosteel Castings for the upcoming dividend? Earnings per share growth has been growing somewhat, and Electrosteel Castings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Electrosteel Castings is halfway there. There's a lot to like about Electrosteel Castings, and we would prioritise taking a closer look at it.

So while Electrosteel Castings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 3 warning signs for Electrosteel Castings (1 can't be ignored!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Find out whether Electrosteel Castings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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.

Electrosteel Castings Limited manufactures and supplies ductile iron (DI) pipes, DI fittings and accessories, and cast iron (CI) pipes in India and internationally.

Average dividend payer and fair value.