Just Two Days Till Marico Limited (NSE:MARICO) Will Be Trading Ex-Dividend

Marico Limited (NSE:MARICO) is about to trade ex-dividend in the next two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Marico's shares before the 7th of February in order to be eligible for the dividend, which will be paid on the 2nd of March.

The company's upcoming dividend is ₹3.50 a share, following on from the last 12 months, when the company distributed a total of ₹10.00 per share to shareholders. Last year's total dividend payments show that Marico has a trailing yield of 1.5% on the current share price of ₹673.35. If you buy this business for its dividend, you should have an idea of whether Marico's dividend is reliable and sustainable. So we need to investigate whether Marico can afford its dividend, and if the dividend could grow.

See our latest analysis for Marico

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Marico's payout ratio is modest, at just 28% of profit. 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. Marico paid out more free cash flow than it generated - 155%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While Marico's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Marico to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Marico, with earnings per share up 7.5% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Marico has delivered 26% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Marico an attractive dividend stock, or better left on the shelf? Marico delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 155% of its cash flow over the last year, which is a mediocre outcome. Overall, it's hard to get excited about Marico from a dividend perspective.

So if you want to do more digging on Marico, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 1 warning sign for Marico 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.