Salona Cotspin Limited (NSE:SALONA) Passed Our Checks, And It's About To Pay A ₹1.00 Dividend

By
Simply Wall St
Published
September 03, 2021
NSEI:SALONA
Source: Shutterstock

Salona Cotspin Limited (NSE:SALONA) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Salona Cotspin investors that purchase the stock on or after the 8th of September will not receive the dividend, which will be paid on the 16th of October.

The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹1.00 to shareholders. Calculating the last year's worth of payments shows that Salona Cotspin has a trailing yield of 0.5% on the current share price of ₹195.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Salona Cotspin

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. Salona Cotspin paid out just 4.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Salona Cotspin paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

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

historic-dividend
NSEI:SALONA Historic Dividend September 4th 2021

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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Salona Cotspin has grown its earnings rapidly, up 36% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Salona Cotspin's dividend payments are broadly unchanged compared to where they were 10 years ago.

The Bottom Line

Has Salona Cotspin got what it takes to maintain its dividend payments? Companies like Salona Cotspin that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Salona Cotspin looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 4 warning signs for Salona Cotspin (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

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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