Here's What We Like About K.C.P. Sugar and Industries' (NSE:KCPSUGIND) Upcoming Dividend

K.C.P. Sugar and Industries Corporation Limited (NSE:KCPSUGIND) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be two business days 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 can take two business days or more to settle. Therefore, if you purchase K.C.P. Sugar and Industries' shares on or after the 18th of September, you won't be eligible to receive the dividend, when it is paid on the 25th of October.

The company's next dividend payment will be ₹0.10 per share. Last year, in total, the company distributed ₹0.10 to shareholders. Looking at the last 12 months of distributions, K.C.P. Sugar and Industries has a trailing yield of approximately 0.3% on its current stock price of ₹32.40. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

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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. K.C.P. Sugar and Industries paid out just 7.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 5.3% of its free cash flow last year.

Check out our latest analysis for K.C.P. Sugar and Industries

Click here to see how much of its profit K.C.P. Sugar and Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. K.C.P. Sugar and Industries reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. K.C.P. Sugar and Industries's dividend payments are effectively flat on where they were 10 years ago.

Remember, you can always get a snapshot of K.C.P. Sugar and Industries's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Should investors buy K.C.P. Sugar and Industries for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in K.C.P. Sugar and Industries for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for K.C.P. Sugar and Industries you should know about.

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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.