Credo Brands Marketing (NSE:MUFTI) Could Be A Buy For Its Upcoming Dividend
Readers hoping to buy Credo Brands Marketing Limited (NSE:MUFTI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Credo Brands Marketing's shares on or after the 28th of August, you won't be eligible to receive the dividend, when it is paid on the 11th of October.
The company's upcoming dividend is ₹2.00 a share, following on from the last 12 months, when the company distributed a total of ₹2.00 per share to shareholders. Calculating the last year's worth of payments shows that Credo Brands Marketing has a trailing yield of 2.6% on the current share price of ₹76.85. If you buy this business for its dividend, you should have an idea of whether Credo Brands Marketing's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Credo Brands Marketing's payout ratio is modest, at just 28% of profit. 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. The good news is it paid out just 17% of its free cash flow in the last year.
It's positive to see that Credo Brands Marketing'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 Credo Brands Marketing
Click here to see how much of its profit Credo Brands Marketing paid out over the last 12 months.
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. It's encouraging to see Credo Brands Marketing has grown its earnings rapidly, up 65% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
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, two years ago, Credo Brands Marketing has lifted its dividend by approximately 100% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Is Credo Brands Marketing worth buying for its dividend? Credo Brands Marketing has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past two years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Credo Brands Marketing for the dividends alone, you should always be mindful of the risks involved. We've identified 4 warning signs with Credo Brands Marketing (at least 1 which shouldn't be ignored), and understanding these 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.