Route Mobile Limited (NSE:ROUTE) is about to trade ex-dividend in the next 2 days. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. In other words, investors can purchase Route Mobile’s shares before the 1st of November in order to be eligible for the dividend, which will be paid on the 19th of November.
The company’s next dividend payment will be ₹3.00 per share. Last year, in total, the company distributed ₹5.00 to shareholders. Calculating the last year’s worth of payments shows that Route Mobile has a trailing yield of 0.4% on the current share price of ₹1308.6. 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.
Our analysis indicates that ROUTE is potentially overvalued!
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. Route Mobile paid out just 13% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Thankfully its dividend payments took up just 25% of the free cash flow it generated, which is a comfortable payout ratio.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
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. That’s why it’s comforting to see Route Mobile’s earnings have been skyrocketing, up 25% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Route Mobile also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill.
Given that Route Mobile has only been paying a dividend for a year, there’s not much of a past history to draw insight from.
From a dividend perspective, should investors buy or avoid Route Mobile? Route Mobile has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Route Mobile looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
In light of that, while Route Mobile has an appealing dividend, it’s worth knowing the risks involved with this stock. To help with this, we’ve discovered 2 warning signs for Route Mobile that you should be aware of before investing in their shares.
If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Valuation is complex, but we’re helping make it simple.
Find out whether Route Mobile 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.