Dr. Lal PathLabs Limited (NSE:LALPATHLAB) Looks Interesting, And It's About To Pay A Dividend

Dr. Lal PathLabs Limited (NSE:LALPATHLAB) stock is about to trade ex-dividend in 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Dr. Lal PathLabs' shares before the 10th of June in order to be eligible for the dividend, which will be paid on the 29th of July.

The company's next dividend payment will be ₹6.00 per share. Last year, in total, the company distributed ₹24.00 to shareholders. Calculating the last year's worth of payments shows that Dr. Lal PathLabs has a trailing yield of 0.9% on the current share price of ₹2644.50. 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.

View our latest analysis for Dr. Lal PathLabs

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Dr. Lal PathLabs paid out 56% of its earnings to investors last year, a normal payout level for most businesses. 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 distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Dr. Lal PathLabs'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.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Dr. Lal PathLabs's earnings per share have been growing at 12% a year for the past five years. Dr. Lal PathLabs is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dr. Lal PathLabs has delivered 33% dividend growth per year on average over the past eight years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy Dr. Lal PathLabs for the upcoming dividend? Dr. Lal PathLabs's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Dr. Lal PathLabs looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Dr. Lal PathLabs for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Dr. Lal PathLabs 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.