Don't Race Out To Buy AksharChem (India) Limited (NSE:AKSHARCHEM) Just Because It's Going Ex-Dividend

Readers hoping to buy AksharChem (India) Limited (NSE:AKSHARCHEM) 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase AksharChem (India)'s shares before the 20th of September to receive the dividend, which will be paid on the 27th of October.

The company's next dividend payment will be ₹0.50 per share. Last year, in total, the company distributed ₹0.50 to shareholders. Last year's total dividend payments show that AksharChem (India) has a trailing yield of 0.2% on the current share price of ₹289.4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for AksharChem (India)

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. AksharChem (India)'s dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 1.7% of its free cash flow as dividends last year, which is conservatively low.

Click here to see how much of its profit AksharChem (India) paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. AksharChem (India) reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the AksharChem (India) dividends are largely the same as they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

We update our analysis on AksharChem (India) every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is AksharChem (India) an attractive dividend stock, or better left on the shelf? It's hard to get used to AksharChem (India) paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: AksharChem (India) has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in AksharChem (India) despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 2 warning signs for AksharChem (India) (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

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.