There's A Lot To Like About Supreme Petrochem's (NSE:SPLPETRO) Upcoming ₹2.50 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Supreme Petrochem Limited (NSE:SPLPETRO) is about to trade ex-dividend in the next 3 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. Accordingly, Supreme Petrochem investors that purchase the stock on or after the 30th of October will not receive the dividend, which will be paid on the 22nd of November.

The company's upcoming dividend is ₹2.50 a share, following on from the last 12 months, when the company distributed a total of ₹10.50 per share to shareholders. Looking at the last 12 months of distributions, Supreme Petrochem has a trailing yield of approximately 1.5% on its current stock price of ₹712.60. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Supreme Petrochem's payout ratio is modest, at just 28% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Supreme Petrochem's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Check out our latest analysis for Supreme Petrochem

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Supreme Petrochem, with earnings per share up 2.3% on average over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Supreme Petrochem has delivered 30% dividend growth per year on average over the past 10 years. 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 Supreme Petrochem worth buying for its dividend? Earnings per share have been growing moderately, and Supreme Petrochem 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. It might be nice to see earnings growing faster, but Supreme Petrochem is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Supreme Petrochem for the dividends alone, you should always be mindful of the risks involved. For example, Supreme Petrochem has 2 warning signs (and 1 which is significant) we think you should know about.

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