Voltas Limited (NSE:VOLTAS) is about to go ex-dividend, paying a yield of 0.4%

Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Voltas Limited (NSE:VOLTAS) is about to trade ex-dividend in the next three days. The ex-dividend date is generally set one business day before the record date. This is the cut-off date on which you, as a shareholder, must be present on the company’s books in order to receive the dividend. The ex-dividend date is an important date to pay attention to, as any purchase of shares on or after this date could result in a late settlement that will not be reflected on the record date. So, you can buy Voltas shares before June 25 to receive the dividend that the company will pay on August 9.

The company’s next dividend payout will be ₹5.50 per share. Last year, the company distributed a total of ₹5.50 to shareholders. Looking at the last twelve months’ distributions, Voltas has a rolling yield of around 0.4% on the current share price of ₹1,484.05. Dividends make an important contribution to investment returns for long-term owners, but only if the dividend continues to be paid. We need to see if the dividend is covered by profits and if it grows.

Check out our latest analysis for Voltas

Dividends are usually paid from company profits. If a company pays more in dividends than it earned in profits, the dividend may be unsustainable. Voltas paid out 72% of its profits to investors last year, a normal payout level for most companies. A useful secondary check can be to evaluate whether Voltas generated enough free cash flow to pay its dividend. Fortunately, dividend payments only took up 30% of free cash flow, which is a comfortable payout ratio.

It’s encouraging to see that the dividend is covered by both profits and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

Have profits and dividends grown?

Companies with declining profits are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. Readers will then understand why we are concerned about Voltas’s earnings per share decline of 13% per year over the past five years. Ultimately, as earnings per share decline, the size of the pie from which dividends can be paid shrinks.

Many investors will judge a company’s dividend performance by evaluating how much the dividend payments have changed over time. Over the past ten years, Voltas has increased its dividend by about 13% per year on average. That’s interesting, but the combination of a growing dividend despite declining profits can usually only be achieved by paying out a larger share of the company’s profits. This can be valuable to shareholders, but it can’t go on forever.

It comes down to

Should Investors Buy Voltas for the Upcoming Dividend? The payout ratios are within a reasonable range, implying the dividend can be sustainable. However, falling profits are a serious concern and could threaten the dividend in the future. In summary, Voltas looks good based on this analysis, although it doesn’t seem like a standout prospect.

If you want to investigate Voltas further, it’s worth knowing what risks this company faces. For example, we found 2 warning signs for Voltas which we recommend you consider before investing in the company.

In general, we don’t recommend just buying the first dividend stock you see. Here is a curated list of interesting stocks that are strong dividend payers.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.

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