It looks like J. B. Chemicals & Pharmaceuticals Limited (NSE:JBCHEPHARM) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 14th of August, you won’t be eligible to receive this dividend, when it is paid on the 26th of August.
J. B. Chemicals & Pharmaceuticals’s next dividend payment will be ₹5.00 per share. Last year, in total, the company distributed ₹5.00 to shareholders. Looking at the last 12 months of distributions, J. B. Chemicals & Pharmaceuticals has a trailing yield of approximately 1.3% on its current stock price of ₹371.65. 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.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. J. B. Chemicals & Pharmaceuticals paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 14% 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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That’s why it’s comforting to see J. B. Chemicals & Pharmaceuticals’s earnings have been skyrocketing, up 27% per annum for the past five years. J. B. Chemicals & Pharmaceuticals earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky “beep-beep”. We also like that it is reinvesting most of its profits in its business.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, J. B. Chemicals & Pharmaceuticals has increased its dividend at approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is J. B. Chemicals & Pharmaceuticals an attractive dividend stock, or better left on the shelf? It’s great that J. B. Chemicals & Pharmaceuticals is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It’s disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There’s a lot to like about J. B. Chemicals & Pharmaceuticals, and we would prioritise taking a closer look at it.
Wondering what the future holds for J. B. Chemicals & Pharmaceuticals? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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