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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. Investors can purchase shares before the 1st of August in order to be eligible for this dividend, which will be paid on the 6th of September.
Newgen Software Technologies's next dividend payment will be ₹3.00 per share, on the back of last year when the company paid a total of ₹3.00 to shareholders. Based on the last year's worth of payments, Newgen Software Technologies has a trailing yield of 1.0% on the current stock price of ₹289.35. If you buy this business for its dividend, you should have an idea of whether Newgen Software Technologies's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Newgen Software Technologies
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. Newgen Software Technologies paid out just 20% 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. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Newgen Software Technologies'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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Newgen Software Technologies's earnings per share have risen 12% per annum over the last five years. Newgen Software Technologies is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.