Interested In AVT Natural Products' (NSE:AVTNPL) Upcoming ₹0.30 Dividend? You Have Two Days Left

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AVT Natural Products Limited (NSE:AVTNPL) is about to trade ex-dividend in the next two 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. Meaning, you will need to purchase AVT Natural Products' shares before the 20th of February to receive the dividend, which will be paid on the 14th of March.

The company's next dividend payment will be ₹0.30 per share, on the back of last year when the company paid a total of ₹0.80 to shareholders. Based on the last year's worth of payments, AVT Natural Products has a trailing yield of 1.2% on the current stock price of ₹68.39. If you buy this business for its dividend, you should have an idea of whether AVT Natural Products's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for AVT Natural Products

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. AVT Natural Products paid out a comfortable 27% of its profit last year. A useful secondary check can be to evaluate whether AVT Natural Products generated enough free cash flow to afford its dividend. Over the past year it paid out 142% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While AVT Natural Products's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were AVT Natural Products to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, AVT Natural Products's earnings per share have been growing at 17% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AVT Natural Products has delivered 0.6% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

From a dividend perspective, should investors buy or avoid AVT Natural Products? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

So while AVT Natural Products looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - AVT Natural Products has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.