Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Coforge Limited (NSE: COFORGE) is set to go ex-dividend in just three days. The ex-dividend date is one business day before a company’s record date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any trade in a share must have settled before the record date to be eligible for a dividend. This means that investors who buy Coforge shares on or after August 3 will not receive the dividend, which will be paid on January 1.

The company’s next dividend payment will be ₹13.00 per share, following last year when the company paid a total of ₹52.00 to shareholders. Total dividend payouts from last year show that Coforge has a yield of 1.3% on the current share price of ₹3954.3. Dividends contribute greatly to investment returns for long-term holders, but only if the dividend continues to be paid. Therefore, readers should always check whether Coforge was able to increase its dividends or if the dividend could be reduced.

See our latest analysis for Coforge

Dividends are usually paid out of company profits, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Coforge paid out a comfortable 46% of its profit last year. Still, cash flow is usually more important than earnings in assessing the sustainability of dividends, so we always need to check whether the company has generated enough cash to pay its dividend. Over the past year, it has paid out 52% of its free cash flow as dividends, within the usual range for most companies.

It is positive to see that Coforge’s dividend is covered by both earnings and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio generally suggests a higher margin of security before the dividend is cut.

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

Have earnings and dividends increased?

Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. It is encouraging to see that Coforge has grown its revenues rapidly, increasing by 23% per year over the past five years.

Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Coforge has recorded dividend growth of 21% per year on average over the past 10 years. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing at the same time.

Last takeaway

From a dividend perspective, should investors buy or avoid Coforge? From a dividend perspective, we are encouraged to see that earnings per share have increased, with the company paying out less than half of its earnings and just over half of its free cash flow. Overall, we think this is an attractive combination and worthy of further research.

In light of this, although Coforge has an attractive dividend, it is worth knowing the risks associated with this stock. For example – Coforge has 1 warning sign we think you should know.

A common investment mistake is to buy the first good stock you see. Here you can find a complete list of high yielding dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.