AVT Natural Products (NSE:AVTNPL) Could Be A Buy For Its Upcoming Dividend

Readers hoping to buy AVT Natural Products Limited (NSE:AVTNPL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 17th of February will not receive this dividend, which will be paid on the 12th of March.

AVT Natural Products's upcoming dividend is ₹0.30 a share, following on from the last 12 months, when the company distributed a total of ₹0.70 per share to shareholders. Based on the last year's worth of payments, AVT Natural Products has a trailing yield of 1.5% on the current stock price of ₹47.05. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for AVT Natural Products

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. AVT Natural Products has a low and conservative payout ratio of just 24% of its income after tax. A useful secondary check can be to evaluate whether AVT Natural Products generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that AVT Natural Products'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 how much of its profit AVT Natural Products paid out over the last 12 months.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see AVT Natural Products earnings per share are up 9.7% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, AVT Natural Products has increased its dividend at approximately 17% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is AVT Natural Products an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and AVT Natural Products is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but AVT Natural Products is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about AVT Natural Products, and we would prioritise taking a closer look at it.

While it's tempting to invest in AVT Natural Products for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for AVT Natural Products that you should be aware of before investing in their 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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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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