Is It Smart To Buy Bannari Amman Sugars Limited (NSE:BANARISUG) Before It Goes Ex-Dividend?

Readers hoping to buy Bannari Amman Sugars Limited (NSE:BANARISUG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Bannari Amman Sugars' shares before the 22nd of August in order to be eligible for the dividend, which will be paid on the 28th of September.

The company's next dividend payment will be ₹12.50 per share, on the back of last year when the company paid a total of ₹12.50 to shareholders. Last year's total dividend payments show that Bannari Amman Sugars has a trailing yield of 0.3% on the current share price of ₹3750.20. If you buy this business for its dividend, you should have an idea of whether Bannari Amman Sugars's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bannari Amman Sugars is paying out just 15% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Bannari Amman Sugars generated enough free cash flow to afford its dividend. The good news is it paid out just 4.4% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for Bannari Amman Sugars

Click here to see how much of its profit Bannari Amman Sugars paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Bannari Amman Sugars, with earnings per share up 3.5% on average over the last five years. Bannari Amman Sugars is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bannari Amman Sugars's dividend payments are effectively flat on where they were 10 years ago.

The Bottom Line

Should investors buy Bannari Amman Sugars for the upcoming dividend? Earnings per share have been growing moderately, and Bannari Amman Sugars 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 Bannari Amman Sugars is being conservative with its dividend payouts and could still perform reasonably over the long run. Bannari Amman Sugars looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Bannari Amman Sugars is facing. To help with this, we've discovered 1 warning sign for Bannari Amman Sugars that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.