Chembond Chemicals Limited (NSE:CHEMBOND) Passed Our Checks, And It's About To Pay A ₹3.50 Dividend

It looks like Chembond Chemicals Limited (NSE:CHEMBOND) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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 Chembond Chemicals' shares on or after the 22nd of July, you won't be eligible to receive the dividend, when it is paid on the 6th of September.

The company's next dividend payment will be ₹3.50 per share, on the back of last year when the company paid a total of ₹3.50 to shareholders. Last year's total dividend payments show that Chembond Chemicals has a trailing yield of 0.6% on the current share price of ₹633.30. If you buy this business for its dividend, you should have an idea of whether Chembond Chemicals's dividend is reliable and sustainable. As a result, readers should always check whether Chembond Chemicals has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Chembond Chemicals

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. Chembond Chemicals has a low and conservative payout ratio of just 11% 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. Fortunately, it paid out only 26% of its free cash flow in the past year.

It's positive to see that Chembond Chemicals'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 how much of its profit Chembond Chemicals 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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Chembond Chemicals's earnings have been skyrocketing, up 21% per annum for the past five years. Chembond Chemicals is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Chembond Chemicals has increased its dividend at approximately 9.4% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Chembond Chemicals worth buying for its dividend? It's great that Chembond Chemicals is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Chembond Chemicals has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 3 warning signs with Chembond Chemicals 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.

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