NCC Limited (NSE:NCC) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 8th of August to receive the dividend, which will be paid on the 1st of January.

NCC's next dividend payment will be ₹1.50 per share, on the back of last year when the company paid a total of ₹1.50 to shareholders. Last year's total dividend payments show that NCC has a trailing yield of 2.1% on the current share price of ₹72.75. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for NCC

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. NCC paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see NCC's earnings have been skyrocketing, up 153% per annum for the past five years. NCC earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.

NCC 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. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, NCC has lifted its dividend by approximately 3.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because NCC is keeping back more of its profits to grow the business.

Final Takeaway

Is NCC worth buying for its dividend? NCC has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about NCC, and we would prioritise taking a closer look at it.