Is It Smart To Buy Kothari Sugars and Chemicals Limited (NSE:KOTARISUG) Before It Goes Ex-Dividend?

Kothari Sugars and Chemicals Limited (NSE:KOTARISUG) is about to trade ex-dividend in the next three 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. 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 Kothari Sugars and Chemicals' shares before the 20th of February in order to be eligible for the dividend, which will be paid on the 12th of March.

The company's next dividend payment will be ₹0.50 per share, and in the last 12 months, the company paid a total of ₹1.00 per share. Based on the last year's worth of payments, Kothari Sugars and Chemicals has a trailing yield of 1.6% on the current stock price of ₹61.65. 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 Kothari Sugars and Chemicals can afford its dividend, and if the dividend could grow.

See our latest analysis for Kothari Sugars and Chemicals

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Kothari Sugars and Chemicals paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Kothari Sugars and Chemicals generated enough free cash flow to afford its dividend. The good news is it paid out just 7.7% 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.

Click here to see how much of its profit Kothari Sugars and Chemicals 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Kothari Sugars and Chemicals's earnings have been skyrocketing, up 83% per annum for the past five years. Kothari Sugars and Chemicals looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kothari Sugars and Chemicals has delivered an average of 8.0% per year annual increase in its dividend, based on the past nine 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.

To Sum It Up

From a dividend perspective, should investors buy or avoid Kothari Sugars and Chemicals? It's great that Kothari Sugars and Chemicals is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Kothari Sugars and Chemicals 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 Kothari Sugars and Chemicals is facing. Our analysis shows 2 warning signs for Kothari Sugars and Chemicals and you should be aware of them before buying any shares.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.