Colgate-Palmolive (India) Limited (NSE:COLPAL) Is About To Go Ex-Dividend, And It Pays A 2.5% Yield

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Colgate-Palmolive (India) Limited (NSE:COLPAL) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 29th of October will not receive the dividend, which will be paid on the 20th of November.

Colgate-Palmolive (India)'s next dividend payment will be ₹18.00 per share, on the back of last year when the company paid a total of ₹36.00 to shareholders. Looking at the last 12 months of distributions, Colgate-Palmolive (India) has a trailing yield of approximately 2.5% on its current stock price of ₹1431.95. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Colgate-Palmolive (India)

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Colgate-Palmolive (India) paid out 106% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Colgate-Palmolive (India) generated enough free cash flow to afford its dividend. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.

It's good to see that while Colgate-Palmolive (India)'s dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Colgate-Palmolive (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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Colgate-Palmolive (India), with earnings per share up 9.4% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Colgate-Palmolive (India) has increased its dividend at approximately 13% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Has Colgate-Palmolive (India) got what it takes to maintain its dividend payments? While earnings per share have been growing slowly, Colgate-Palmolive (India) is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. It's not that we think Colgate-Palmolive (India) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Colgate-Palmolive (India). Case in point: We've spotted 1 warning sign for Colgate-Palmolive (India) you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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