Should You Buy Insecticides (India) Limited (NSE:INSECTICID) For Its Upcoming Dividend?

Readers hoping to buy Insecticides (India) Limited (NSE:INSECTICID) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 19th of November in order to receive the dividend, which the company will pay on the 9th of December.

Insecticides (India)'s next dividend payment will be ₹2.00 per share, and in the last 12 months, the company paid a total of ₹2.00 per share. Last year's total dividend payments show that Insecticides (India) has a trailing yield of 0.5% on the current share price of ₹441.15. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Insecticides (India)

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. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 3.7% of its free cash flow last year.

Click here to see how much of its profit Insecticides (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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Insecticides (India), with earnings per share up 2.6% on average over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Insecticides (India) has increased its dividend at approximately 4.1% 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

From a dividend perspective, should investors buy or avoid Insecticides (India)? Earnings per share have been growing moderately, and Insecticides (India) 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. 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 Insecticides (India) is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Insecticides (India) for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Insecticides (India) and understanding them should be part of your investment process.

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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