Should Income Investors Look At Venky's (India) Limited (NSE:VENKEYS) Before Its Ex-Dividend?

It looks like Venky's (India) Limited (NSE:VENKEYS) is about to go ex-dividend in the next 4 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Venky's (India)'s shares on or after the 23rd of August, you won't be eligible to receive the dividend, when it is paid on the 11th of October.

The company's next dividend payment will be ₹7.00 per share, and in the last 12 months, the company paid a total of ₹7.00 per share. Based on the last year's worth of payments, Venky's (India) stock has a trailing yield of around 0.3% on the current share price of ₹2234.60. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Venky's (India) has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Venky's (India)

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Venky's (India) is paying out just 12% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Venky's (India) generated enough free cash flow to afford its dividend. Fortunately, it paid out only 27% of its free cash flow in the past 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 Venky's (India) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. 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 not ideal to see Venky's (India)'s earnings per share have been shrinking at 5.0% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Venky's (India) has delivered 7.7% dividend growth per year on average over the past 10 years.

To Sum It Up

From a dividend perspective, should investors buy or avoid Venky's (India)? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, Venky's (India) looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Venky's (India) is facing. To help with this, we've discovered 2 warning signs for Venky's (India) (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.