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 L.G. Balakrishnan & Bros Limited (NSE:LGBBROSLTD) is about to go ex-dividend in just 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase L.G. Balakrishnan & Bros' shares on or after the 1st of September will not receive the dividend, which will be paid on the 9th of October.
The company's next dividend payment will be ₹10.00 per share. Last year, in total, the company distributed ₹10.00 to shareholders. Last year's total dividend payments show that L.G. Balakrishnan & Bros has a trailing yield of 2.4% on the current share price of ₹409.15. If you buy this business for its dividend, you should have an idea of whether L.G. Balakrishnan & Bros's dividend is reliable and sustainable. As a result, readers should always check whether L.G. Balakrishnan & Bros has been able to grow its dividends, or if the dividend might be cut.
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. L.G. Balakrishnan & Bros paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 0.1% 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?
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. It's encouraging to see L.G. Balakrishnan & Bros has grown its earnings rapidly, up 22% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, L.G. Balakrishnan & Bros looks like a promising growth company.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. L.G. Balakrishnan & Bros has delivered an average of 15% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Has L.G. Balakrishnan & Bros got what it takes to maintain its dividend payments? L.G. Balakrishnan & Bros 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. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in L.G. Balakrishnan & Bros for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for L.G. Balakrishnan & Bros that you should be aware of before investing in their 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. 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.
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