Is It Smart To Buy LT Foods Limited (NSE:LTFOODS) Before It Goes Ex-Dividend?

Readers hoping to buy LT Foods Limited (NSE:LTFOODS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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 LT Foods' shares on or after the 30th of May, you won't be eligible to receive the dividend, when it is paid on the 16th of June.

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. Looking at the last 12 months of distributions, LT Foods has a trailing yield of approximately 0.5% on its current stock price of ₹205.20. 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! As a result, readers should always check whether LT Foods has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for LT Foods

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. LT Foods has a low and conservative payout ratio of just 6.0% of its income after tax. A useful secondary check can be to evaluate whether LT Foods generated enough free cash flow to afford its dividend. It paid out 6.3% of its free cash flow as dividends last year, which is conservatively low.

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 LT Foods 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. It's encouraging to see LT Foods has grown its earnings rapidly, up 34% a year for the past five years. LT Foods earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

LT Foods also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, LT Foods has lifted its dividend by approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Has LT Foods got what it takes to maintain its dividend payments? It's great that LT Foods 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. LT Foods looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in LT Foods for the dividends alone, you should always be mindful of the risks involved. For example - LT Foods 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.