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Readers hoping to buy RPG Life Sciences Limited (NSE:RPGLIFE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 22nd of July, you won't be eligible to receive this dividend, when it is paid on the 29th of August.

RPG Life Sciences's next dividend payment will be ₹2.40 per share, and in the last 12 months, the company paid a total of ₹2.40 per share. Based on the last year's worth of payments, RPG Life Sciences has a trailing yield of 1.1% on the current stock price of ₹214.75. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether RPG Life Sciences has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for RPG Life Sciences

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. Fortunately RPG Life Sciences's payout ratio is modest, at just 37% of profit. A useful secondary check can be to evaluate whether RPG Life Sciences generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 3.1% of its cash flow last year.

It's positive to see that RPG Life Sciences'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 how much of its profit RPG Life Sciences paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. RPG Life Sciences's earnings per share have fallen at approximately 27% a year over the previous 5 years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. RPG Life Sciences has delivered 7.2% dividend growth per year on average over the past 10 years.

The Bottom Line

From a dividend perspective, should investors buy or avoid RPG Life Sciences? RPG Life Sciences has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

Curious about whether RPG Life Sciences has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.