Thejo Engineering Limited (NSE:THEJO) stock is about to trade ex-dividend in 3 days time. You can purchase shares before the 8th of August in order to receive the dividend, which the company will pay on the 18th of September.

Thejo Engineering's upcoming dividend is ₹5.00 a share, following on from the last 12 months, when the company distributed a total of ₹5.00 per share to shareholders. Last year's total dividend payments show that Thejo Engineering has a trailing yield of 0.9% on the current share price of ₹530. If you buy this business for its dividend, you should have an idea of whether Thejo Engineering's dividend is reliable and sustainable. As a result, readers should always check whether Thejo Engineering has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Thejo Engineering

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. Thejo Engineering paid out just 13% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 10% of its free cash flow last year.

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.

Click here to see how much of its profit Thejo Engineering paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Thejo Engineering has grown its earnings rapidly, up 34% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Thejo Engineering looks like a promising growth company.

Unfortunately Thejo Engineering has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

Should investors buy Thejo Engineering for the upcoming dividend? We love that Thejo Engineering is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.

Keen to explore more data on Thejo Engineering's financial performance? Check out our visualisation of its historical revenue and earnings growth.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.