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If you are interested in cashing in on RITES Limited’s (NSE:RITES) upcoming dividend of ₹4.00 per share, you only have 4 days left to buy the shares before its ex-dividend date, 20 March 2019, in time for dividends payable on the 10 April 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine RITES’s latest financial data to analyse its dividend characteristics.
Check out our latest analysis for RITES
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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Is it the top 25% annual dividend yield payer?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has it increased its dividend per share amount over the past?
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Does earnings amply cover its dividend payments?
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Will the company be able to keep paying dividend based on the future earnings growth?
Does RITES pass our checks?
The current trailing twelve-month payout ratio for the stock is 32%, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider RITES as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Compared to its peers, RITES produces a yield of 3.3%, which is high for Professional Services stocks.
Next Steps:
If RITES is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three key aspects you should look at: