Monte Carlo Fashions Limited (NSE:MONTECARLO) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Monte Carlo Fashions Limited (NSE:MONTECARLO) is about to trade ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Monte Carlo Fashions' shares before the 21st of September in order to receive the dividend, which the company will pay on the 28th of October.

The company's upcoming dividend is ₹20.00 a share, following on from the last 12 months, when the company distributed a total of ₹20.00 per share to shareholders. Calculating the last year's worth of payments shows that Monte Carlo Fashions has a trailing yield of 3.6% on the current share price of ₹549.95. 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 Monte Carlo Fashions can afford its dividend, and if the dividend could grow.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Monte Carlo Fashions's payout ratio is modest, at just 37% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 67% of its free cash flow as dividends, within the usual range for most companies.

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 Monte Carlo Fashions

Click here to see how much of its profit Monte Carlo Fashions paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Monte Carlo Fashions earnings per share are up 9.6% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Monte Carlo Fashions has increased its dividend at approximately 7.2% 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

Has Monte Carlo Fashions got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that Monte Carlo Fashions is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. To summarise, Monte Carlo Fashions looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in Monte Carlo Fashions for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for Monte Carlo Fashions that we strongly recommend you have a look at before investing in the company.

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.