K.P.R. Mill Limited (NSE:KPRMILL) Looks Interesting, And It's About To Pay A Dividend

It looks like K.P.R. Mill Limited (NSE:KPRMILL) is about to go ex-dividend in the next three days. Investors can purchase shares before the 10th of February in order to be eligible for this dividend, which will be paid on the 5th of March.

K.P.R. Mill's next dividend payment will be ₹3.75 per share, on the back of last year when the company paid a total of ₹4.50 to shareholders. Looking at the last 12 months of distributions, K.P.R. Mill has a trailing yield of approximately 0.5% on its current stock price of ₹921.4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for K.P.R. Mill

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. K.P.R. Mill paid out just 7.6% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 4.4% of its free cash flow last year.

It's positive to see that K.P.R. Mill'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see K.P.R. Mill's earnings have been skyrocketing, up 21% per annum for the past five years. K.P.R. Mill looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, K.P.R. Mill has increased its dividend at approximately 1.2% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

Is K.P.R. Mill an attractive dividend stock, or better left on the shelf? It's great that K.P.R. Mill 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. There's a lot to like about K.P.R. Mill, and we would prioritise taking a closer look at it.

While it's tempting to invest in K.P.R. Mill for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for K.P.R. Mill that we recommend you consider before investing in the business.

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.

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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.
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