Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Peria Karamalai Tea and Produce Company Limited (NSE:PKTEA) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 29th of August, you won't be eligible to receive this dividend, when it is paid on the 10th of September.
Peria Karamalai Tea and Produce's next dividend payment will be ₹0.75 per share. Last year, in total, the company distributed ₹0.75 to shareholders. Calculating the last year's worth of payments shows that Peria Karamalai Tea and Produce has a trailing yield of 0.7% on the current share price of ₹108.45. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Peria Karamalai Tea and Produce is paying out just 4.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution.
Peria Karamalai Tea and Produce paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Peria Karamalai Tea and Produce has grown its earnings rapidly, up 27% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Peria Karamalai Tea and Produce has seen its dividend decline 18% per annum on average over the past 7 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
Is Peria Karamalai Tea and Produce worth buying for its dividend? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. To summarise, Peria Karamalai Tea and Produce looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Keen to explore more data on Peria Karamalai Tea and Produce'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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.