Three Days Left Until Vinyl Chemicals (India) Limited (NSE:VINYLINDIA) Trades Ex-Dividend

Vinyl Chemicals (India) Limited (NSE:VINYLINDIA) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 31st of August in order to receive the dividend, which the company will pay on the 16th of October.

Vinyl Chemicals (India)'s next dividend payment will be ₹2.40 per share, on the back of last year when the company paid a total of ₹2.40 to shareholders. Based on the last year's worth of payments, Vinyl Chemicals (India) stock has a trailing yield of around 2.1% on the current share price of ₹113.85. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Vinyl Chemicals (India)

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Vinyl Chemicals (India) is paying out an acceptable 56% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Vinyl Chemicals (India) generated enough free cash flow to afford its dividend. It paid out 8.6% of its free cash flow as dividends last year, which is conservatively low.

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 Vinyl Chemicals (India) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Vinyl Chemicals (India)'s 8.5% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Vinyl Chemicals (India) has lifted its dividend by approximately 36% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Should investors buy Vinyl Chemicals (India) for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. To summarise, Vinyl Chemicals (India) looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So if you want to do more digging on Vinyl Chemicals (India), you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 2 warning signs for Vinyl Chemicals (India) you should be aware of.

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.

When trading Vinyl Chemicals (India) or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.