Is It Smart To Buy Deepak Fertilisers And Petrochemicals Corporation Limited (NSE:DEEPAKFERT) Before It Goes Ex-Dividend?

Simply Wall St
August 12, 2021
Source: Shutterstock

Readers hoping to buy Deepak Fertilisers And Petrochemicals Corporation Limited (NSE:DEEPAKFERT) 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 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. This means that investors who purchase Deepak Fertilisers And Petrochemicals' shares on or after the 17th of August will not receive the dividend, which will be paid on the 25th of September.

The company's next dividend payment will be ₹7.50 per share. Last year, in total, the company distributed ₹7.50 to shareholders. Looking at the last 12 months of distributions, Deepak Fertilisers And Petrochemicals has a trailing yield of approximately 1.7% on its current stock price of ₹446.6. If you buy this business for its dividend, you should have an idea of whether Deepak Fertilisers And Petrochemicals's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Deepak Fertilisers And Petrochemicals

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Deepak Fertilisers And Petrochemicals is paying out just 18% 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 Deepak Fertilisers And Petrochemicals generated enough free cash flow to afford its dividend. The good news is it paid out just 2.6% of its free cash flow in the last year.

It's positive to see that Deepak Fertilisers And Petrochemicals'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 Deepak Fertilisers And Petrochemicals paid out over the last 12 months.

NSEI:DEEPAKFERT Historic Dividend August 13th 2021

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Deepak Fertilisers And Petrochemicals's earnings have been skyrocketing, up 25% per annum for the past five years. Deepak Fertilisers And Petrochemicals looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Deepak Fertilisers And Petrochemicals has delivered an average of 4.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

From a dividend perspective, should investors buy or avoid Deepak Fertilisers And Petrochemicals? It's great that Deepak Fertilisers And Petrochemicals 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. Deepak Fertilisers And Petrochemicals looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Deepak Fertilisers And Petrochemicals has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 4 warning signs for Deepak Fertilisers And Petrochemicals that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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