There's A Lot To Like About Ramkrishna Forgings' (NSE:RKFORGE) Upcoming ₹0.50 Dividend

Stock Analysis

Readers hoping to buy Ramkrishna Forgings Limited (NSE:RKFORGE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Ramkrishna Forgings' shares on or after the 9th of May, you won't be eligible to receive the dividend, when it is paid on the 28th of May.

The company's next dividend payment will be ₹0.50 per share, and in the last 12 months, the company paid a total of ₹2.00 per share. Last year's total dividend payments show that Ramkrishna Forgings has a trailing yield of 0.6% on the current share price of ₹336.1. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Ramkrishna Forgings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ramkrishna Forgings has a low and conservative payout ratio of just 13% of its income after tax. 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. Luckily it paid out just 7.0% of its free cash flow last year.

It's positive to see that Ramkrishna Forgings'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 how much of its profit Ramkrishna Forgings paid out over the last 12 months.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Ramkrishna Forgings's earnings have been skyrocketing, up 21% per annum for the past five years. Ramkrishna Forgings looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Ramkrishna Forgings has lifted its dividend by approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Is Ramkrishna Forgings an attractive dividend stock, or better left on the shelf? Ramkrishna Forgings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Ramkrishna Forgings for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Ramkrishna Forgings that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Find out whether Ramkrishna Forgings 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.

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Ramkrishna Forgings Limited manufactures and supplies open and closed die forgings of carbon and alloy steel, micro alloy steel, and stainless steel in India and internationally.

Excellent balance sheet average dividend payer.