Here’s What We Like About Ambika Cotton Mills’ (NSE:AMBIKCO) Upcoming Dividend

Readers hoping to buy Ambika Cotton Mills Limited (NSE:AMBIKCO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company’s books as a shareholder in order to receive the 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. Therefore, if you purchase Ambika Cotton Mills’ shares on or after the 21st of September, you won’t be eligible to receive the dividend, when it is paid on the 29th of October.

The company’s next dividend payment will be ₹35.00 per share, and in the last 12 months, the company paid a total of ₹35.00 per share. Calculating the last year’s worth of payments shows that Ambika Cotton Mills has a trailing yield of 2.0% on the current share price of ₹1778.25. 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.

See our latest analysis for Ambika Cotton Mills

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ambika Cotton Mills is paying out just 11% 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. It paid out 6.9% of its free cash flow as dividends last year, which is conservatively low.

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 Ambika Cotton Mills paid out over the last 12 months.

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 fall far enough, the company could be forced to cut its dividend. It’s encouraging to see Ambika Cotton Mills has grown its earnings rapidly, up 27% a year for the past five years. Ambika Cotton Mills looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Ambika Cotton Mills has lifted its dividend by approximately 21% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Ambika Cotton Mills an attractive dividend stock, or better left on the shelf? It’s great that Ambika Cotton Mills is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It’s disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Ambika Cotton Mills looks solid on this analysis overall, and we’d definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for Ambika Cotton Mills and you should be aware of this before buying any shares.

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.