Here's What We Like About Banco Products (India)'s (NSE:BANCOINDIA) Upcoming Dividend
Readers hoping to buy Banco Products (India) Limited (NSE:BANCOINDIA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Banco Products (India)'s shares on or after the 11th of September, you won't be eligible to receive the dividend, when it is paid on the 19th of October.
The company's next dividend payment will be ₹8.00 per share, and in the last 12 months, the company paid a total of ₹16.00 per share. Calculating the last year's worth of payments shows that Banco Products (India) has a trailing yield of 2.6% on the current share price of ₹623.50. If you buy this business for its dividend, you should have an idea of whether Banco Products (India)'s dividend is reliable and sustainable. So we need to investigate whether Banco Products (India) can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Banco Products (India)'s payout ratio is modest, at just 45% of profit. A useful secondary check can be to evaluate whether Banco Products (India) generated enough free cash flow to afford its dividend. It paid out 89% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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.
See our latest analysis for Banco Products (India)
Click here to see how much of its profit Banco Products (India) 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Banco Products (India)'s earnings have been skyrocketing, up 34% per annum for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Banco Products (India) has lifted its dividend by approximately 26% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
From a dividend perspective, should investors buy or avoid Banco Products (India)? Earnings per share have grown at a nice rate in recent times and over the last year, Banco Products (India) paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.
So while Banco Products (India) looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Banco Products (India) and understanding them should be part of your investment process.
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.