Be Sure To Check Out Balaji Amines Limited (NSE:BALAMINES) Before It Goes Ex-Dividend

It looks like Balaji Amines Limited (NSE:BALAMINES) is about to go ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Balaji Amines' shares on or after the 1st of August will not receive the dividend, which will be paid on the 7th of September.

The company's upcoming dividend is ₹11.00 a share, following on from the last 12 months, when the company distributed a total of ₹11.00 per share to shareholders. Looking at the last 12 months of distributions, Balaji Amines has a trailing yield of approximately 0.7% on its current stock price of ₹1681.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Balaji Amines paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 73% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Balaji Amines'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.

Check out our latest analysis for Balaji Amines

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Balaji Amines earnings per share are up 8.5% per annum over the last five years. Decent historical earnings per share growth suggests Balaji Amines has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Balaji Amines has lifted its dividend by approximately 27% a year on average. 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Balaji Amines? Earnings per share have been growing at a steady rate, and Balaji Amines paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, it's hard to get excited about Balaji Amines from a dividend perspective.

Ever wonder what the future holds for Balaji Amines? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.