Monte Carlo Fashions Limited (NSE:MONTECARLO) Looks Interesting, And It’s About To Pay A Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Monte Carlo Fashions Limited (NSE:MONTECARLO) is about to trade ex-dividend in the next three days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Monte Carlo Fashions’ shares on or after the 20th of September, you won’t be eligible to receive the dividend, when it is paid on the 28th of October.

The company’s next dividend payment will be ₹20.00 per share, on the back of last year when the company paid a total of ₹20.00 to shareholders. Looking at the last 12 months of distributions, Monte Carlo Fashions has a trailing yield of approximately 2.3% on its current stock price of ₹863.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Monte Carlo Fashions has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Monte Carlo Fashions

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. That’s why it’s good to see Monte Carlo Fashions paying out a modest 34% of its earnings. 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. Dividends consumed 68% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 Monte Carlo Fashions 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Monte Carlo Fashions has grown its earnings rapidly, up 23% a year for the past five years.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Monte Carlo Fashions has delivered 10% dividend growth per year on average over the past seven years. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy Monte Carlo Fashions for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Monte Carlo Fashions paid out less than half its earnings and a bit over half its free cash flow. It’s a promising combination that should mark this company worthy of closer attention.

So while Monte Carlo Fashions looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we’ve identified 1 warning sign with Monte Carlo Fashions and understanding them should be part of your investment process.

If you’re in the market for strong dividend payers, we recommend checking our selection of top 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.