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JK Tyre & Industries Limited (NSE:JKTYRE) stock is about to trade ex-dividend in 3 days time. Investors can purchase shares before the 6th of August in order to be eligible for this dividend, which will be paid on the 13th of September.
JK Tyre & Industries's upcoming dividend is ₹1.50 a share, following on from the last 12 months, when the company distributed a total of ₹1.50 per share to shareholders. Calculating the last year's worth of payments shows that JK Tyre & Industries has a trailing yield of 2.1% on the current share price of ₹71.2. 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! So we need to investigate whether JK Tyre & Industries can afford its dividend, and if the dividend could grow.
Check out our latest analysis for JK Tyre & Industries
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. JK Tyre & Industries paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 15% of its free cash flow in the last year.
It's positive to see that JK Tyre & Industries'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see JK Tyre & Industries's earnings per share have dropped 9.5% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
JK Tyre & Industries also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.