It looks like Deepak Fertilisers And Petrochemicals Corporation Limited (NSE:DEEPAKFERT) is about to go ex-dividend in the next 3 days. You will need to purchase shares before the 5th of August to receive the dividend, which will be paid on the 26th of August.
Deepak Fertilisers And Petrochemicals's next dividend payment will be ₹3.00 per share. Last year, in total, the company distributed ₹3.00 to shareholders. Based on the last year's worth of payments, Deepak Fertilisers And Petrochemicals stock has a trailing yield of around 3.5% on the current share price of ₹86.3. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Deepak Fertilisers And Petrochemicals can afford its dividend, and if the dividend could grow.
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 Deepak Fertilisers And Petrochemicals's payout ratio is modest, at just 37% of profit. A useful secondary check can be to evaluate whether Deepak Fertilisers And Petrochemicals generated enough free cash flow to afford its dividend. The good news is it paid out just 10% of its free cash flow in the last year.
It's positive to see that Deepak Fertilisers And Petrochemicals'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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Deepak Fertilisers And Petrochemicals's earnings per share have dropped 22% a year over the past five 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. Deepak Fertilisers And Petrochemicals has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
The Bottom Line
Should investors buy Deepak Fertilisers And Petrochemicals for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about Deepak Fertilisers And Petrochemicals from a dividend perspective.
Keen to explore more data on Deepak Fertilisers And Petrochemicals's financial performance? Check out our visualisation of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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