Is It Worth Considering Advanced Enzyme Technologies Limited (NSE:ADVENZYMES) For Its Upcoming Dividend?

Readers hoping to buy Advanced Enzyme Technologies Limited (NSE:ADVENZYMES) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Advanced Enzyme Technologies' shares on or after the 18th of July will not receive the dividend, which will be paid on the 24th of August.

The company's next dividend payment will be ₹1.10 per share, on the back of last year when the company paid a total of ₹5.10 to shareholders. Looking at the last 12 months of distributions, Advanced Enzyme Technologies has a trailing yield of approximately 1.4% on its current stock price of ₹376.40. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Advanced Enzyme Technologies has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Advanced Enzyme Technologies

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. Advanced Enzyme Technologies paid out a comfortable 43% of its profit last year. 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 59% 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.

Click here to see how much of its profit Advanced Enzyme Technologies paid out over the last 12 months.

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 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 encouraged by the steady growth at Advanced Enzyme Technologies, with earnings per share up 3.7% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Advanced Enzyme Technologies has delivered an average of 44% per year annual increase in its dividend, based on the past seven years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Advanced Enzyme Technologies? Earnings per share growth has been modest, and it's interesting that Advanced Enzyme Technologies is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with Advanced Enzyme Technologies and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com