Zuari Industries Limited (NSE:ZUARIIND) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Zuari Industries Limited (NSE:ZUARIIND) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Zuari Industries' shares before the 14th of September in order to receive the dividend, which the company will pay on the 21st of October.
The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹1.00 to shareholders. Calculating the last year's worth of payments shows that Zuari Industries has a trailing yield of 0.4% on the current share price of ₹273.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Zuari Industries paid out just 2.8% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 3.7% of its free cash flow last year.
It's positive to see that Zuari Industries'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.
See our latest analysis for Zuari Industries
Click here to see how much of its profit Zuari Industries 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 Zuari Industries earnings per share are up 9.9% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Zuari Industries's dividend payments are broadly unchanged compared to where they were 10 years ago.
To Sum It Up
Is Zuari Industries an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Zuari Industries 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 Zuari Industries 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 Zuari Industries for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 3 warning signs for Zuari Industries (1 doesn't sit too well with us) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.