Should You Buy Mold-Tek Technologies Limited (NSE:MOLDTECH) For Its Upcoming Dividend?

Mold-Tek Technologies Limited (NSE:MOLDTECH) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Mold-Tek Technologies' shares before the 12th of April to receive the dividend, which will be paid on the 2nd of May.

The company's next dividend payment will be ₹2.00 per share, on the back of last year when the company paid a total of ₹3.40 to shareholders. Based on the last year's worth of payments, Mold-Tek Technologies stock has a trailing yield of around 1.4% on the current share price of ₹240.45. 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.

See our latest analysis for Mold-Tek Technologies

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. Mold-Tek Technologies paid out just 13% 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. Luckily it paid out just 3.6% of its free cash flow last year.

It's positive to see that Mold-Tek Technologies's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Mold-Tek Technologies paid out over the last 12 months.

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 Mold-Tek Technologies's earnings have been skyrocketing, up 40% per annum for the past five years. Mold-Tek Technologies looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Mold-Tek Technologies has increased its dividend at approximately 30% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Mold-Tek Technologies worth buying for its dividend? Mold-Tek Technologies 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. There's a lot to like about Mold-Tek Technologies, and we would prioritise taking a closer look at it.

While it's tempting to invest in Mold-Tek Technologies for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Mold-Tek Technologies and you should be aware of them before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.