Is It Smart To Buy Filatex India Limited (NSE:FILATEX) Before It Goes Ex-Dividend?

Filatex India Limited (NSE:FILATEX) stock is about to trade ex-dividend in 4 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 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 Filatex India's shares on or after the 20th of September will not receive the dividend, which will be paid on the 27th of October.

The company's next dividend payment will be ₹0.20 per share, and in the last 12 months, the company paid a total of ₹0.20 per share. Looking at the last 12 months of distributions, Filatex India has a trailing yield of approximately 0.3% on its current stock price of ₹68.62. 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 investigate whether Filatex India can afford its dividend, and if the dividend could grow.

View our latest analysis for Filatex India

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Filatex India is paying out just 8.0% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out 6.8% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Filatex India'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 Filatex India 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Filatex India earnings per share are up 7.7% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Filatex India's dividend payments are broadly unchanged compared to where they were three years ago.

To Sum It Up

Is Filatex India an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Filatex India is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Filatex India is halfway there. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 2 warning signs for Filatex India (1 is a bit concerning) you should be aware of.

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.