Mangalore Chemicals & Fertilizers Limited (NSE:MANGCHEFER) Looks Interesting, And It's About To Pay A Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Mangalore Chemicals & Fertilizers Limited (NSE:MANGCHEFER) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 4th of September to receive the dividend, which will be paid on the 15th of October.

Mangalore Chemicals & Fertilizers's next dividend payment will be ₹0.50 per share, on the back of last year when the company paid a total of ₹0.50 to shareholders. Calculating the last year's worth of payments shows that Mangalore Chemicals & Fertilizers has a trailing yield of 1.4% on the current share price of ₹34.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Mangalore Chemicals & Fertilizers has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Mangalore Chemicals & Fertilizers

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. Mangalore Chemicals & Fertilizers paid out just 7.8% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Mangalore Chemicals & Fertilizers generated enough free cash flow to afford its dividend. Luckily it paid out just 2.1% of its free cash flow 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.

Click here to see how much of its profit Mangalore Chemicals & Fertilizers 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. For this reason, we're glad to see Mangalore Chemicals & Fertilizers's earnings per share have risen 15% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Mangalore Chemicals & Fertilizers has seen its dividend decline 6.7% per annum on average over the past 10 years, which is not great to see. Mangalore Chemicals & Fertilizers is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Has Mangalore Chemicals & Fertilizers got what it takes to maintain its dividend payments? Mangalore Chemicals & Fertilizers has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 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.

So while Mangalore Chemicals & Fertilizers looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 3 warning signs for Mangalore Chemicals & Fertilizers (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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