Why You Might Be Interested In Filatex India Limited (NSE:FILATEX) For Its Upcoming Dividend

It looks like Filatex India Limited (NSE:FILATEX) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is two business days 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Filatex India's shares before the 19th of September to receive the dividend, which will be paid on the 26th of October.

The company's next dividend payment will be ₹0.25 per share. Last year, in total, the company distributed ₹0.25 to shareholders. Based on the last year's worth of payments, Filatex India stock has a trailing yield of around 0.4% on the current share price of ₹55.84. 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.

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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. Filatex India is paying out just 8.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Filatex India generated enough free cash flow to afford its dividend. The good news is it paid out just 3.4% of its free cash flow in the last year.

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.

See our latest analysis for Filatex India

Click here to see how much of its profit Filatex India paid out over the last 12 months.

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. This is why it's a relief to see Filatex India earnings per share are up 3.0% per annum over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last four years, Filatex India has lifted its dividend by approximately 5.7% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Filatex India an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Filatex India is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Filatex India is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Filatex India, and we would prioritise taking a closer look at it.

In light of that, while Filatex India has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Filatex India that we strongly recommend you have a look at before investing in the company.

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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.