Readers hoping to buy Apex Frozen Foods Limited (NSE:APEX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Apex Frozen Foods' shares before the 10th of September in order to be eligible for the dividend, which will be paid on the 17th of October.
The company's next dividend payment will be ₹2.50 per share, and in the last 12 months, the company paid a total of ₹2.50 per share. Based on the last year's worth of payments, Apex Frozen Foods has a trailing yield of 0.7% on the current stock price of ₹375.15. 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! So we need to investigate whether Apex Frozen Foods can afford its dividend, and if the dividend could grow.
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. Apex Frozen Foods is paying out just 20% 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 7.0% of its free cash flow last year.
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.
View our latest analysis for Apex Frozen Foods
Click here to see how much of its profit Apex Frozen Foods 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Apex Frozen Foods earnings per share are up 3.0% per annum over the last five years. Apex Frozen Foods 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. In the past eight years, Apex Frozen Foods has increased its dividend at approximately 2.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Apex Frozen Foods an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Apex Frozen Foods is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Apex Frozen Foods is halfway there. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Apex Frozen Foods for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with Apex Frozen Foods (at least 1 which can't be ignored), and understanding these should be part of your investment process.
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.