Why You Might Be Interested In Sona BLW Precision Forgings Limited (NSE:SONACOMS) For Its Upcoming Dividend

Sep 16, 2023

Stock Analysis

Readers hoping to buy Sona BLW Precision Forgings Limited (NSE:SONACOMS) 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 the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Sona BLW Precision Forgings' shares before the 6th of February in order to be eligible for the dividend, which will be paid on the 23rd of February.

The company's upcoming dividend is ₹1.28 a share, following on from the last 12 months, when the company distributed a total of ₹2.56 per share to shareholders. Based on the last year's worth of payments, Sona BLW Precision Forgings stock has a trailing yield of around 0.6% on the current share price of ₹456.55. If you buy this business for its dividend, you should have an idea of whether Sona BLW Precision Forgings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Sona BLW Precision Forgings

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. Sona BLW Precision Forgings paid out a comfortable 32% of its profit last year. 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. It distributed 49% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Sona BLW Precision 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 the company's payout ratio, plus analyst estimates of its future dividends.

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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Sona BLW Precision Forgings has grown its earnings rapidly, up 46% a year 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.

Given that Sona BLW Precision Forgings 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 Sona BLW Precision Forgings? Sona BLW Precision Forgings 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. There's a lot to like about Sona BLW Precision Forgings, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Sona BLW Precision Forgings is facing. Our analysis shows 1 warning sign for Sona BLW Precision Forgings and you should be aware of this before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Find out whether Sona BLW Precision 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Sona BLW Precision Forgings Limited designs, manufactures, and supplies systems and components for the automotive industry in India and internationally.

Exceptional growth potential with flawless balance sheet.