It looks like Birlasoft Limited (NSE: BSOFT) is set to be ex-dividend within the next two days. The ex-dividend date is one working day before the registration date, which is the deadline by which shareholders must be present on the books of the company to be eligible for a dividend payment. The ex-dividend date is an important date to know, as any purchase of shares made on or after that date may mean a late settlement that does not appear on the record date. This means that you will have to buy the Birlasoft shares before July 15 to receive the dividend, which will be paid on August 27.

The upcoming dividend for Birlasoft will put a total of 2.50 per per share in the pockets of shareholders, up from last year’s total dividends of 2.00 last. Dividends are an important source of income for many shareholders, but the health of the business is crucial to sustaining these dividends. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.

See our latest review for Birlasoft

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Fortunately, Birlasoft’s payout ratio is modest, at just 30% of profits. Still, cash flow is usually more important than earnings in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. It paid 10% of its free cash flow as dividends last year, which is conservative.

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

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

Have profits and dividends increased?

When profits fall, dividend companies become much more difficult to analyze and safely own. If business goes into recession and the dividend is reduced, the company could experience a sharp drop in value. This is why it is not ideal to see Birlasoft’s earnings per share decline by 4.7% per year over the past five years.

Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Since our data began 10 years ago, Birlasoft has increased its dividend by around 30% per year on average.

To summarize

Should investors buy Birlasoft for the next dividend? Earnings per share are down significantly, although at least the company pays a small and conservative percentage of its earnings and cash flow. It’s certainly not great to see profits plummet, but at least there may be some buffer before the dividend has to be cut. Overall, we are not extremely bearish on the stock, but there are probably better dividend investments.

On that note, you’ll want to research the risks Birlasoft faces. To help you, we have discovered 2 warning signs for Birlasoft which you should know before investing in their stocks.

However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend stocks with a yield above 2% and a dividend coming soon.

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