Is It Smart To Buy Fineotex Chemical Limited (NSE:FCL) Before It Goes Ex-Dividend?

It looks like Fineotex Chemical Limited (NSE:FCL) is about to go ex-dividend in the next three 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Fineotex Chemical's shares before the 26th of February in order to be eligible for the dividend, which will be paid on the 12th of March.

The company's next dividend payment will be ₹1.20 per share, on the back of last year when the company paid a total of ₹0.80 to shareholders. Looking at the last 12 months of distributions, Fineotex Chemical has a trailing yield of approximately 0.2% on its current stock price of ₹432.70. If you buy this business for its dividend, you should have an idea of whether Fineotex Chemical's dividend is reliable and sustainable. So we need to investigate whether Fineotex Chemical can afford its dividend, and if the dividend could grow.

View our latest analysis for Fineotex Chemical

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. Fineotex Chemical paid out just 10% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Fineotex Chemical generated enough free cash flow to afford its dividend. Luckily it paid out just 4.4% 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 Fineotex Chemical 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Fineotex Chemical has grown its earnings rapidly, up 39% a year for the past five years. Fineotex Chemical 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Fineotex Chemical has delivered an average of 26% per year annual increase in its dividend, based on the past nine years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Should investors buy Fineotex Chemical for the upcoming dividend? It's great that Fineotex Chemical 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. It's a promising combination that should mark this company worthy of closer attention.

Want to learn more about Fineotex Chemical? Here's a visualisation of its historical rate of revenue and earnings growth.

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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.