Ambika Cotton Mills Limited (NSE:AMBIKCO) Passed Our Checks, And It's About To Pay A ₹37.00 Dividend
Readers hoping to buy Ambika Cotton Mills Limited (NSE:AMBIKCO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Ambika Cotton Mills' shares on or after the 22nd of September will not receive the dividend, which will be paid on the 29th of October.
The company's next dividend payment will be ₹37.00 per share. Last year, in total, the company distributed ₹37.00 to shareholders. Looking at the last 12 months of distributions, Ambika Cotton Mills has a trailing yield of approximately 2.4% on its current stock price of ₹1568.80. 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! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ambika Cotton Mills paid out a comfortable 30% of its profit last year. 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. The good news is it paid out just 13% of its free cash flow in the last year.
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.
Check out our latest analysis for Ambika Cotton Mills
Click here to see how much of its profit Ambika Cotton Mills 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. This is why it's a relief to see Ambika Cotton Mills earnings per share are up 3.7% per annum over the last five years. Recent growth has not been impressive. 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ambika Cotton Mills has delivered 9.4% 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
From a dividend perspective, should investors buy or avoid Ambika Cotton Mills? Earnings per share growth has been growing somewhat, and Ambika Cotton Mills is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Ambika Cotton Mills is halfway there. There's a lot to like about Ambika Cotton Mills, and we would prioritise taking a closer look at it.
While it's tempting to invest in Ambika Cotton Mills for the dividends alone, you should always be mindful of the risks involved. We've identified 3 warning signs with Ambika Cotton Mills (at least 1 which is a bit concerning), and understanding these should be part of your investment process.
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.