Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Weizmann Limited (NSE:WEIZMANIND) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Weizmann's shares on or after the 16th of July will not receive the dividend, which will be paid on the 21st of August.
The company's upcoming dividend is ₹0.50 a share, following on from the last 12 months, when the company distributed a total of ₹0.50 per share to shareholders. Based on the last year's worth of payments, Weizmann stock has a trailing yield of around 0.6% on the current share price of ₹79.59. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Weizmann is paying out just 13% 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 11% of its free cash flow last year.
It's positive to see that Weizmann'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.
Check out our latest analysis for Weizmann
Click here to see how much of its profit Weizmann paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Weizmann, with earnings per share up 4.9% on average over the last five years. Weizmann is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Weizmann dividends are largely the same as they were 10 years ago.
The Bottom Line
Should investors buy Weizmann for the upcoming dividend? Earnings per share growth has been growing somewhat, and Weizmann is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Weizmann is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Weizmann, and we would prioritise taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. We've identified 2 warning signs with Weizmann (at least 1 which is a bit concerning), and understanding these should be part of your investment process.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.