Mrs. Bectors Food Specialities Limited (NSE:BECTORFOOD) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Mrs. Bectors Food Specialities Limited (NSE:BECTORFOOD) is about to go ex-dividend in the next 3 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. Therefore, if you purchase Mrs. Bectors Food Specialities' shares on or after the 21st of February, you won't be eligible to receive the dividend, when it is paid on the 9th of March.

The company's next dividend payment will be ₹1.25 per share. Last year, in total, the company distributed ₹3.00 to shareholders. Calculating the last year's worth of payments shows that Mrs. Bectors Food Specialities has a trailing yield of 0.3% on the current share price of ₹1032.75. 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 investigate whether Mrs. Bectors Food Specialities can afford its dividend, and if the dividend could grow.

See our latest analysis for Mrs. Bectors Food Specialities

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. Mrs. Bectors Food Specialities is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 40% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Mrs. Bectors Food Specialities'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. It's encouraging to see Mrs. Bectors Food Specialities has grown its earnings rapidly, up 30% a year for the past five years. Mrs. Bectors Food Specialities is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mrs. Bectors Food Specialities has delivered an average of 7.7% per year annual increase in its dividend, based on the past three years of dividend payments. 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.

The Bottom Line

Is Mrs. Bectors Food Specialities an attractive dividend stock, or better left on the shelf? Mrs. Bectors Food Specialities has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past three years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Mrs. Bectors Food Specialities for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Mrs. Bectors Food Specialities that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.