Is It Smart To Buy Nilkamal Limited (NSE:NILKAMAL) Before It Goes Ex-Dividend?
Nilkamal Limited (NSE:NILKAMAL) stock is about to trade ex-dividend in 3 days time. Investors can purchase shares before the 20th of November in order to be eligible for this dividend, which will be paid on the 13th of December.
Nilkamal's next dividend payment will be ₹5.00 per share. Last year, in total, the company distributed ₹14.00 to shareholders. Looking at the last 12 months of distributions, Nilkamal has a trailing yield of approximately 1.1% on its current stock price of ₹1316.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Nilkamal can afford its dividend, and if the dividend could grow.
See our latest analysis for Nilkamal
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Nilkamal is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 15% 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.
Click here to see how much of its profit Nilkamal paid out over the last 12 months.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Nilkamal's earnings have been skyrocketing, up 24% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Nilkamal looks like a promising growth company.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Nilkamal has increased its dividend at approximately 21% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Should investors buy Nilkamal for the upcoming dividend? Nilkamal has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.
Keen to explore more data on Nilkamal's financial performance? Check out our visualisation 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.
