Should You Buy Manali Petrochemicals Limited (NSE:MANALIPETC) For Its Upcoming Dividend?

By
Simply Wall St
Published
August 28, 2021
NSEI:MANALIPETC
Source: Shutterstock

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Manali Petrochemicals Limited (NSE:MANALIPETC) is about to go ex-dividend in just three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Manali Petrochemicals' shares on or after the 2nd of September, you won't be eligible to receive the dividend, when it is paid on the 25th of October.

The company's upcoming dividend is ₹1.50 a share, following on from the last 12 months, when the company distributed a total of ₹1.50 per share to shareholders. Calculating the last year's worth of payments shows that Manali Petrochemicals has a trailing yield of 1.7% on the current share price of ₹89.15. If you buy this business for its dividend, you should have an idea of whether Manali Petrochemicals's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Manali Petrochemicals

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Manali Petrochemicals is paying out just 9.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 6.7% of its free cash flow in the 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 Manali Petrochemicals paid out over the last 12 months.

historic-dividend
NSEI:MANALIPETC Historic Dividend August 29th 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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Manali Petrochemicals's earnings have been skyrocketing, up 42% per annum for the past five years. Manali 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Manali Petrochemicals has delivered 12% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Manali Petrochemicals worth buying for its dividend? Manali Petrochemicals has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Manali Petrochemicals, and we would prioritise taking a closer look at it.

Want to learn more about Manali Petrochemicals's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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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