Does it make sense to buy Deepak Fertilizers And Petrochemicals Corporation Limited (NSE: DEEPAKFERT) before it goes ex-dividend?

Deepak Fertilizers And Petrochemicals Corporation Limited (NSE: DEEPAKFERT) The stock is set to trade ex-dividend in three days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. The ex-dividend date is an important date to know because any purchase of shares made on or after this date may mean late settlement which does not appear on the record date. This means you will need to buy shares of Deepak Fertilizers And Petrochemicals by August 25 to receive the dividend, which will be paid on October 2.

The company’s next dividend payment will be ₹9.00 per share. Last year, in total, the company distributed ₹9.00 to shareholders. Based on last year’s payouts, Deepak Fertilizers And Petrochemicals has a yield of 1.0% on the current share price of ₹902.65. Dividends contribute greatly to investment returns for long-term holders, but only if the dividend continues to be paid. That’s why we always have to check if the dividend payouts seem sustainable and if the business is growing.

Check out our latest analysis for Deepak Fertilizers And Petrochemicals

Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Deepak Fertilizers And Petrochemicals has a low and conservative payout ratio of just 11% of its after-tax income. Still, cash flow is usually more important than earnings in assessing the sustainability of dividends, so we always need to check whether the company has generated enough cash to pay its dividend. Fortunately, it only paid out 37% of its free cash flow over the past year.

It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.

Click here to see how much profit Deepak Fertilizers And Petrochemicals has paid out over the last 12 months.

Have earnings and dividends increased?

Companies with consistently rising earnings per share tend to create the best dividend-paying stocks because they generally find it easier to increase dividends per share. If earnings fall enough, the company could be forced to cut its dividend. It is encouraging to see that Deepak Fertilizers And Petrochemicals has grown its profits rapidly, up 36% annually over the past five years. Deepak Fertilizers And Petrochemicals is paying out less than half of its earnings and cash flow, while simultaneously growing its 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, Deepak Fertilizers And Petrochemicals has increased its dividend by approximately 5.0% per year on average. It’s good to see that earnings and the dividend have improved – although the former has grown much faster than the latter, perhaps because the company has reinvested more of its earnings into growth.

Last takeaway

Did Deepak Fertilizers And Petrochemicals get what it takes to maintain its dividend payments? Deepak Fertilizers And Petrochemicals increased earnings per share while simultaneously reinvesting in the business. Unfortunately, it has cut the dividend at least once in the last 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall, we think this is an attractive combination worthy of further research.

Although it is tempting to invest in Deepak Fertilizers And Petrochemicals for the dividends alone, you should always be aware of the risks involved. For example, Deepak Fertilizers And Petrochemicals has 3 warning signs (and 1 of concern) that we think you should know about.

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.