Why You Might Be Interested In Aries Agro Limited (NSE:ARIES) For Its Upcoming Dividend

Readers hoping to buy Aries Agro Limited (NSE:ARIES) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Aries Agro's shares before the 16th of September in order to be eligible for the dividend, which will be paid on the 15th of October.

The company's upcoming dividend is ₹1.00 a share, following on from the last 12 months, when the company distributed a total of ₹1.00 per share to shareholders. Looking at the last 12 months of distributions, Aries Agro has a trailing yield of approximately 0.4% on its current stock price of ₹278.35. If you buy this business for its dividend, you should have an idea of whether Aries Agro's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Aries Agro

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Aries Agro is paying out just 6.7% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Aries Agro generated enough free cash flow to afford its dividend. Luckily it paid out just 2.8% of its free cash flow last year.

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 Aries Agro 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. Fortunately for readers, Aries Agro's earnings per share have been growing at 17% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Aries Agro's dividend payments per share have declined at 4.0% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Is Aries Agro worth buying for its dividend? Aries Agro 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. Overall we think this is an attractive combination and worthy of further research.

So while Aries Agro looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 3 warning signs for Aries Agro that we recommend you consider before investing in the business.

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.