Atul Ltd (NSE:ATUL) stock is about to trade ex-dividend in 3 days time. Investors can purchase shares before the 4th of November in order to be eligible for this dividend, which will be paid on the 24th of November.
Atul's next dividend payment will be ₹12.5 per share. Last year, in total, the company distributed ₹15.0 to shareholders. Calculating the last year's worth of payments shows that Atul has a trailing yield of 0.4% on the current share price of ₹4251.95. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. Atul has a low and conservative payout ratio of just 7.6% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 16% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Atul's earnings have been skyrocketing, up 22% per annum for the past five years. Atul 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.'
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Atul has lifted its dividend by approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Has Atul got what it takes to maintain its dividend payments? Atul has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Atul looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Atul? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
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