There's A Lot To Like About United Nilgiri Tea Estates' (NSE:UNITEDTEA) Upcoming ₹1.00 Dividend

The United Nilgiri Tea Estates Company Limited (NSE:UNITEDTEA) stock is about to trade ex-dividend in 3 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. 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 United Nilgiri Tea Estates' shares before the 21st of February in order to be eligible for the dividend, which will be paid on the 12th of March.

The company's upcoming dividend is ₹1.00 a share, following on from the last 12 months, when the company distributed a total of ₹2.70 per share to shareholders. Looking at the last 12 months of distributions, United Nilgiri Tea Estates has a trailing yield of approximately 0.7% on its current stock price of ₹391.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for United Nilgiri Tea Estates

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. United Nilgiri Tea Estates is paying out just 7.6% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 22% 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 United Nilgiri Tea Estates 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. This is why it's a relief to see United Nilgiri Tea Estates earnings per share are up 4.3% per annum over the last five years. United Nilgiri Tea Estates is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, United Nilgiri Tea Estates has lifted its dividend by approximately 1.6% a year on average.

To Sum It Up

Is United Nilgiri Tea Estates worth buying for its dividend? Earnings per share growth has been growing somewhat, and United Nilgiri Tea Estates is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but United Nilgiri Tea Estates is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about United Nilgiri Tea Estates, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks United Nilgiri Tea Estates is facing. For example, we've found 3 warning signs for United Nilgiri Tea Estates that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.