Garware Technical Fibres Limited (NSE:GARFIBRES) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Garware Technical Fibres Limited (NSE:GARFIBRES) is about to go ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Thus, you can purchase Garware Technical Fibres' shares before the 14th of November in order to receive the dividend, which the company will pay on the 6th of December.

The company's next dividend payment will be ₹8.00 per share, on the back of last year when the company paid a total of ₹1.50 to shareholders. Last year's total dividend payments show that Garware Technical Fibres has a trailing yield of 0.2% on the current share price of ₹737.90. If you buy this business for its dividend, you should have an idea of whether Garware Technical Fibres's dividend is reliable and sustainable. So we need to investigate whether Garware Technical Fibres can afford its dividend, and if the dividend could grow.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Garware Technical Fibres is paying out just 6.4% 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 Garware Technical Fibres generated enough free cash flow to afford its dividend. It paid out 3.9% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Garware Technical Fibres'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.

Check out our latest analysis for Garware Technical Fibres

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Garware Technical Fibres's earnings per share have been growing at 13% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Garware Technical Fibres has lifted its dividend by approximately 9.6% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Garware Technical Fibres worth buying for its dividend? It's great that Garware Technical Fibres is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

Ever wonder what the future holds for Garware Technical Fibres? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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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.