Is It Smart To Buy Apollo Hospitals Enterprise Limited (NSE:APOLLOHOSP) Before It Goes Ex-Dividend?

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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Apollo Hospitals Enterprise Limited (NSE:APOLLOHOSP) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days 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 can take two business days or more to settle. Accordingly, Apollo Hospitals Enterprise investors that purchase the stock on or after the 19th of August will not receive the dividend, which will be paid on the 10th of September.

The company's upcoming dividend is ₹10.00 a share, following on from the last 12 months, when the company distributed a total of ₹19.00 per share to shareholders. Calculating the last year's worth of payments shows that Apollo Hospitals Enterprise has a trailing yield of 0.2% on the current share price of ₹7821.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Apollo Hospitals Enterprise is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Over the last year it paid out 64% of its free cash flow as dividends, within the usual range for most companies.

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.

View our latest analysis for Apollo Hospitals Enterprise

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Apollo Hospitals Enterprise's earnings have been skyrocketing, up 27% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Apollo Hospitals Enterprise has delivered 13% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Apollo Hospitals Enterprise an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Apollo Hospitals Enterprise, and we would prioritise taking a closer look at it.

In light of that, while Apollo Hospitals Enterprise has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Apollo Hospitals Enterprise and understanding them should be part of your investment process.

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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.