Be Sure To Check Out The United Nilgiri Tea Estates Company Limited (NSE:UNITEDTEA) Before It Goes Ex-Dividend

It looks like The United Nilgiri Tea Estates Company Limited (NSE:UNITEDTEA) is about to go ex-dividend in the next day or two. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, United Nilgiri Tea Estates investors that purchase the stock on or after the 24th of March will not receive the dividend, which will be paid on the 15th of April.

The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹2.70 to shareholders. Last year's total dividend payments show that United Nilgiri Tea Estates has a trailing yield of 0.8% on the current share price of ₹341.55. If you buy this business for its dividend, you should have an idea of whether United Nilgiri Tea Estates's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for United Nilgiri Tea Estates

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. United Nilgiri Tea Estates paid out just 8.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow.

Click here to see how much of its profit United Nilgiri Tea Estates paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about United Nilgiri Tea Estates's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, United Nilgiri Tea Estates has lifted its dividend by approximately 1.8% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid United Nilgiri Tea Estates? It's disappointing to see earnings per share have fallen slightly, even though United Nilgiri Tea Estates is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of United Nilgiri Tea Estates don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 3 warning signs for United Nilgiri Tea Estates you should know about.

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.