Divi's Laboratories Limited (NSE:DIVISLAB) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be two business days 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Divi's Laboratories' shares before the 24th of July in order to receive the dividend, which the company will pay on the 9th of September.
The company's next dividend payment will be ₹30.00 per share. Last year, in total, the company distributed ₹30.00 to shareholders. Based on the last year's worth of payments, Divi's Laboratories has a trailing yield of 0.4% on the current stock price of ₹7247.50. 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 Divi's Laboratories has been able to grow its dividends, or if the dividend might be cut.
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. Fortunately Divi's Laboratories's payout ratio is modest, at just 31% of profit. 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. It paid out an unsustainably high 366% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Divi's Laboratories intends to continue funding this dividend, or if it could be forced to cut the payment.
Divi's Laboratories paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Divi's Laboratories to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for Divi's Laboratories
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. This is why it's a relief to see Divi's Laboratories earnings per share are up 5.3% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Divi's Laboratories has delivered 12% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Is Divi's Laboratories an attractive dividend stock, or better left on the shelf? Divi's Laboratories delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 366% of its cash flow over the last year, which is a mediocre outcome. All things considered, we are not particularly enthused about Divi's Laboratories from a dividend perspective.
So if you want to do more digging on Divi's Laboratories, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 1 warning sign for Divi's Laboratories you should be aware of.
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.