Income Investors Should Know That National Fertilizers Limited (NSE:NFL) Goes Ex-Dividend Soon

It looks like National Fertilizers Limited (NSE:NFL) is about to go ex-dividend in the next two 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. Accordingly, National Fertilizers investors that purchase the stock on or after the 20th of September will not receive the dividend, which will be paid on the 26th of October.

The company's next dividend payment will be ₹0.27 per share, on the back of last year when the company paid a total of ₹0.27 to shareholders. Based on the last year's worth of payments, National Fertilizers has a trailing yield of 0.2% on the current stock price of ₹128.18. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for National Fertilizers

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. National Fertilizers is paying out just 8.8% 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 National Fertilizers generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that National Fertilizers'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 National Fertilizers paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. 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 not ideal to see National Fertilizers's earnings per share have been shrinking at 2.2% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last nine years, National Fertilizers has lifted its dividend by approximately 5.3% a year on average.

To Sum It Up

Has National Fertilizers got what it takes to maintain its dividend payments? National Fertilizers has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. In summary, it's hard to get excited about National Fertilizers from a dividend perspective.

On that note, you'll want to research what risks National Fertilizers is facing. Our analysis shows 2 warning signs for National Fertilizers that we strongly recommend you have a look at before investing in the company.

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.