Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ajanta Pharma Limited (NSE:AJANTPHARM) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 15th of November in order to receive the dividend, which the company will pay on the 5th of December.
Ajanta Pharma's upcoming dividend is ₹13.0 a share, following on from the last 12 months, when the company distributed a total of ₹13.0 per share to shareholders. Calculating the last year's worth of payments shows that Ajanta Pharma has a trailing yield of 1.3% on the current share price of ₹988.8. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
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 Ajanta Pharma's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Ajanta Pharma generated enough free cash flow to afford its dividend. It paid out more than half (55%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Ajanta Pharma'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Ajanta Pharma's earnings per share have risen 11% per annum over the last five years. Ajanta Pharma has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, Ajanta Pharma has lifted its dividend by approximately 44% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is Ajanta Pharma worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Ajanta Pharma paid out less than half its earnings and a bit over half its free cash flow. Ajanta Pharma looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Ajanta Pharma? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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 email@example.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.