Two Days Left To Buy Venky's (India) Limited (NSE:VENKEYS) Before The Ex-Dividend Date

Explore Venky's (India)'s Fair Values from the Community and select yours

Venky's (India) Limited (NSE:VENKEYS) stock is about to trade ex-dividend in 2 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Accordingly, Venky's (India) investors that purchase the stock on or after the 14th of August will not receive the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is ₹10.00 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 Venky's (India) has a trailing yield of 0.7% on the current share price of ₹1507.80. 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.

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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. 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. 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. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Venky's (India)'s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

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?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Venky's (India)'s 5.4% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

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, Venky's (India) has lifted its dividend by approximately 12% a year on average.

The Bottom Line

Should investors buy Venky's (India) for the upcoming dividend? Venky's (India) has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Venky's (India)'s dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for Venky's (India) that we recommend you consider before investing in the business.

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.