It looks like Abbott India Limited (NSE:ABBOTINDIA) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 13th of August will not receive this dividend, which will be paid on the 21st of September.
Abbott India's next dividend payment will be ₹65.00 per share, on the back of last year when the company paid a total of ₹65.00 to shareholders. Calculating the last year's worth of payments shows that Abbott India has a trailing yield of 0.7% on the current share price of ₹9001.35. 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 out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Abbott India is paying out just 24% 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. Luckily it paid out just 22% of its free cash flow last year.
It's positive to see that Abbott India'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?
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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Abbott India has grown its earnings rapidly, up 22% a year for the past five years. Abbott India 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Abbott India has increased its dividend at 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.
Is Abbott India worth buying for its dividend? Abbott India 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. It's a promising combination that should mark this company worthy of closer attention.
Curious what other investors think of Abbott India? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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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