Is It Smart To Buy NCL Industries Limited (NSE:NCLIND) Before It Goes Ex-Dividend?

NCL Industries Limited (NSE:NCLIND) stock is about to trade ex-dividend in day or two. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase NCL Industries' shares on or after the 15th 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 ₹3.00 per share to shareholders. Based on the last year's worth of payments, NCL Industries stock has a trailing yield of around 1.4% on the current share price of ₹217.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for NCL Industries

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see NCL Industries paying out a modest 31% of its earnings. 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. The good news is it paid out just 13% 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 NCL Industries 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 NCL Industries earnings per share are up 2.0% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, eight years ago, NCL Industries has lifted its dividend by approximately 5.2% 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.

Final Takeaway

Is NCL Industries worth buying for its dividend? Earnings per share growth has been growing somewhat, and NCL Industries is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and NCL Industries is halfway there. NCL Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while NCL Industries has an appealing dividend, it's worth knowing the risks involved with this stock. For example - NCL Industries has 2 warning signs we think you should be aware of.

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.