Everest Kanto Cylinder Limited (NSE:EKC) Passed Our Checks, And It's About To Pay A ₹0.70 Dividend

It looks like Everest Kanto Cylinder Limited (NSE:EKC) is about to go ex-dividend in the next 4 days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Everest Kanto Cylinder's shares on or after the 23rd of August, you won't be eligible to receive the dividend, when it is paid on the 4th of September.

The company's next dividend payment will be ₹0.70 per share. Last year, in total, the company distributed ₹0.70 to shareholders. Based on the last year's worth of payments, Everest Kanto Cylinder stock has a trailing yield of around 0.4% on the current share price of ₹169.18. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Everest Kanto Cylinder

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. Everest Kanto Cylinder is paying out just 7.9% 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 Everest Kanto Cylinder generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.9% of its cash flow last year.

It's positive to see that Everest Kanto Cylinder'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 Everest Kanto Cylinder paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Everest Kanto Cylinder earnings per share are up 7.5% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Everest Kanto Cylinder dividends are largely the same as they were two years ago.

The Bottom Line

Is Everest Kanto Cylinder worth buying for its dividend? Earnings per share have been growing moderately, and Everest Kanto Cylinder is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Everest Kanto Cylinder is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Everest Kanto Cylinder, and we would prioritise taking a closer look at it.

So while Everest Kanto Cylinder looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Everest Kanto Cylinder and you should be aware of it before buying any shares.

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.