Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Amara Raja Batteries Limited (NSE:AMARAJABAT) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 21st of November will not receive this dividend, which will be paid on the 9th of December.
Amara Raja Batteries's next dividend payment will be ₹6.00 per share, on the back of last year when the company paid a total of ₹11.08 to shareholders. Looking at the last 12 months of distributions, Amara Raja Batteries has a trailing yield of approximately 1.5% on its current stock price of ₹746.7. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Amara Raja Batteries
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 Amara Raja Batteries's payout ratio is modest, at just 31% of profit. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.
It's positive to see that Amara Raja Batteries'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Amara Raja Batteries's earnings per share have risen 11% 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.