Vedant Fashions Limited (NSE:MANYAVAR) Looks Interesting, And It's About To Pay A Dividend

Vedant Fashions Limited (NSE:MANYAVAR) is about to trade ex-dividend in the next 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Vedant Fashions' shares before the 23rd of August in order to be eligible for the dividend, which will be paid on the 29th of September.

The company's upcoming dividend is ₹8.50 a share, following on from the last 12 months, when the company distributed a total of ₹8.50 per share to shareholders. Last year's total dividend payments show that Vedant Fashions has a trailing yield of 0.8% on the current share price of ₹1121.50. If you buy this business for its dividend, you should have an idea of whether Vedant Fashions's dividend is reliable and sustainable. As a result, readers should always check whether Vedant Fashions has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Vedant Fashions

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Vedant Fashions paid out a comfortable 50% of its profit last year. 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. Fortunately, it paid out only 46% of its free cash flow in the past year.

It's positive to see that Vedant Fashions'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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Vedant Fashions's earnings per share have been growing at 17% 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. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last two years, Vedant Fashions has lifted its dividend by approximately 30% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Vedant Fashions? Vedant Fashions has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. 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. Every company has risks, and we've spotted 1 warning sign for Vedant Fashions you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.