Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Anjani Portland Cement Limited (NSE:APCL) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Anjani Portland Cement investors that purchase the stock on or after the 8th of September will not receive the dividend, which will be paid on the 16th of October.
The company’s next dividend payment will be ₹3.00 per share. Last year, in total, the company distributed ₹3.00 to shareholders. Calculating the last year’s worth of payments shows that Anjani Portland Cement has a trailing yield of 1.3% on the current share price of ₹232.75. If you buy this business for its dividend, you should have an idea of whether Anjani Portland Cement’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.
See our latest analysis for Anjani Portland Cement
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. Anjani Portland Cement paid out 100% of its earnings, which is more than we’re comfortable with, unless there are mitigating circumstances. 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 14% of its free cash flow last year.
It’s disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Anjani Portland Cement fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we’d be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see how much of its profit Anjani Portland Cement paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Anjani Portland Cement’s earnings have collapsed faster than Wile E Coyote’s schemes to trap the Road Runner; down a tremendous 30% a year over the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Anjani Portland Cement has increased its dividend at approximately 9.6% a year on average. That’s intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Anjani Portland Cement is already paying out 100% of its profits, and with shrinking earnings we think it’s unlikely that this dividend will grow quickly in the future.
To Sum It Up
Is Anjani Portland Cement worth buying for its dividend? It’s not a great combination to see a company with earnings in decline and paying out 100% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower – good news from a dividend perspective – which makes us wonder why there is such a mis-match between income and cashflow. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Anjani Portland Cement. Every company has risks, and we’ve spotted 4 warning signs for Anjani Portland Cement (of which 1 is a bit concerning!) you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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