Is It Smart To Buy ADF Foods Limited (NSE:ADFFOODS) Before It Goes Ex-Dividend?

By
Simply Wall St
Published
September 11, 2021
NSEI:ADFFOODS
Source: Shutterstock

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that ADF Foods Limited (NSE:ADFFOODS) is about to go ex-dividend in just 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 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 ADF Foods' shares on or after the 16th of September will not receive the dividend, which will be paid on the 24th of October.

The company's next dividend payment will be ₹3.00 per share, and in the last 12 months, the company paid a total of ₹3.00 per share. Based on the last year's worth of payments, ADF Foods has a trailing yield of 0.3% on the current stock price of ₹916.75. 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.

Check out our latest analysis for ADF Foods

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. ADF Foods paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

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

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NSEI:ADFFOODS Historic Dividend September 12th 2021

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see ADF Foods's earnings have been skyrocketing, up 54% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, ADF Foods looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. ADF Foods has delivered 7.2% dividend growth per year on average over the past 10 years. 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.

Final Takeaway

Has ADF Foods got what it takes to maintain its dividend payments? Companies like ADF Foods 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. We think this is a pretty attractive combination, and would be interested in investigating ADF Foods more closely.

Keen to explore more data on ADF Foods's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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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