Readers hoping to buy Nahar Spinning Mills Limited (NSE:NAHARSPING) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Nahar Spinning Mills' shares on or after the 16th of September will not receive the dividend, which will be paid on the 10th of October.
The company's next dividend payment will be ₹1.50 per share, and in the last 12 months, the company paid a total of ₹1.50 per share. Calculating the last year's worth of payments shows that Nahar Spinning Mills has a trailing yield of 0.4% on the current share price of ₹415.3. If you buy this business for its dividend, you should have an idea of whether Nahar Spinning Mills's dividend is reliable and sustainable. So we need to investigate whether Nahar Spinning Mills can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Nahar Spinning Mills is paying out just 3.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Nahar Spinning Mills paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Nahar Spinning Mills has grown its earnings rapidly, up 27% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nahar Spinning Mills's dividend payments per share have declined at 2.8% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
Is Nahar Spinning Mills an attractive dividend stock, or better left on the shelf? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Nahar Spinning Mills more closely.
In light of that, while Nahar Spinning Mills has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 4 warning signs for Nahar Spinning Mills (2 are potentially serious!) that deserve your attention before investing in the shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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. 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.
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