There's A Lot To Like About APL Apollo Tubes' (NSE:APLAPOLLO) Upcoming ₹5.50 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that APL Apollo Tubes Limited (NSE:APLAPOLLO) is about to go ex-dividend in just three days. 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. Therefore, if you purchase APL Apollo Tubes' shares on or after the 19th of September, you won't be eligible to receive the dividend, when it is paid on the 26th of October.

The company's next dividend payment will be ₹5.50 per share, and in the last 12 months, the company paid a total of ₹5.50 per share. Based on the last year's worth of payments, APL Apollo Tubes has a trailing yield of 0.4% on the current stock price of ₹1459.05. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for APL Apollo Tubes

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. APL Apollo Tubes has a low and conservative payout ratio of just 21% of its income after tax. 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. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that APL Apollo Tubes'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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see APL Apollo Tubes's earnings have been skyrocketing, up 33% per annum for the past five years. APL Apollo Tubes is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, APL Apollo Tubes has lifted its dividend by approximately 27% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is APL Apollo Tubes worth buying for its dividend? APL Apollo Tubes has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. APL Apollo Tubes looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while APL Apollo Tubes has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for APL Apollo Tubes you should be aware of.

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.