Cheviot Company Limited (NSE:CHEVIOT) Looks Interesting, And It's About To Pay A Dividend

Cheviot Company Limited (NSE:CHEVIOT) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Cheviot's shares on or after the 14th of June, you won't be eligible to receive the dividend, when it is paid on the 8th of September.

The company's next dividend payment will be ₹5.00 per share, on the back of last year when the company paid a total of ₹5.00 to shareholders. Looking at the last 12 months of distributions, Cheviot has a trailing yield of approximately 0.3% on its current stock price of ₹1514.10. If you buy this business for its dividend, you should have an idea of whether Cheviot's dividend is reliable and sustainable. As a result, readers should always check whether Cheviot has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Cheviot

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. Cheviot has a low and conservative payout ratio of just 4.3% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 61% of its free cash flow as dividends, within the usual range for most companies.

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 Cheviot 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. With that in mind, we're encouraged by the steady growth at Cheviot, with earnings per share up 8.2% on average over the last five years. Decent historical earnings per share growth suggests Cheviot has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Cheviot has seen its dividend decline 6.7% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Should investors buy Cheviot for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that Cheviot is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while Cheviot has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Cheviot that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.