Kaveri Seed Company Limited (NSE:KSCL) is set to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the deadline by which shareholders must be present on the books of the company to be eligible for payment of a dividend. The ex-dividend date is important because each time a stock is bought or sold, the transaction takes at least two business days to settle. So, you can buy shares of Kaveri Seed before August 25 in order to receive the dividend, which the company will pay on September 6.
The company’s next dividend is ₹4.00 per share, following the last 12 months, when the company distributed a total of ₹4.00 per share to shareholders. Based on last year’s payouts, Kaveri Seed has a return of 0.9% on the current share price of ₹461.45. If you buy this company for its dividend, you should have an idea of the reliability and sustainability of Kaveri Seed’s dividend. We therefore need to check whether dividend payments are covered and whether profits are increasing.
Check out our latest analysis for Kaveri Seed
Dividends are usually paid out of company profits. If a company pays out more dividends than it earns in profits, then the dividend could be unsustainable. Kaveri Seed has a low and conservative payout ratio of only 9.2% of its after-tax income. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. It distributed 36% of its free cash flow as dividends, a comfortable level of distribution for most companies.
It is positive to see Kaveri Seed’s dividend being covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a higher margin security before the dividend is reduced.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If earnings fall enough, the company could be forced to cut its dividend. It is encouraging to see that Kaveri Seed has grown its revenue rapidly, growing by 31% per year over the past five years. Kaveri Seed is paying out less than half of its earnings and cash flow, while simultaneously growing earnings per share at a rapid pace. This is a very favorable combination that can often lead to dividend multiplication in the long run, if profits increase and the company pays out a higher percentage of its profits.
Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Over the past 10 years, Kaveri Seed has increased its dividend by around 23% per year on average. Earnings per share and dividends have both increased rapidly lately, which is great to see.
Should investors buy Kaveri Seed for the upcoming dividend? It’s great that Kaveri Seed is increasing its earnings per share while simultaneously paying out a small percentage of its earnings and cash flow. It’s disappointing to see the dividend cut at least once in the past, but as things stand, the low payout ratio suggests a conservative approach to dividends, which we like. Overall, we think it’s an attractive combination and worthy of further research.
In light of this, although Kaveri Seed has an attractive dividend, it is worth knowing the risks associated with this stock. In terms of investment risks, we have identified 1 warning sign with Kaveri Seed and understanding them should be part of your investment process.
If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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