National Fertilizers Limited (NSE:NFL) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy National Fertilizers Limited (NSE:NFL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days 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. Thus, you can purchase National Fertilizers' shares before the 22nd of September in order to receive the dividend, which the company will pay on the 28th of October.

The company's next dividend payment will be ₹1.56 per share, and in the last 12 months, the company paid a total of ₹1.56 per share. Calculating the last year's worth of payments shows that National Fertilizers has a trailing yield of 1.6% on the current share price of ₹99.21. If you buy this business for its dividend, you should have an idea of whether National Fertilizers's dividend is reliable and sustainable. As a result, readers should always check whether National Fertilizers has been able to grow its dividends, or if the dividend might be cut.

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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. Fortunately National Fertilizers's payout ratio is modest, at just 42% of profit. 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. Luckily it paid out just 0.6% of its free cash flow last year.

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.

See our latest analysis for National Fertilizers

Click here to see how much of its profit National Fertilizers 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see National Fertilizers's earnings have been skyrocketing, up 26% per annum for the past five years. National Fertilizers is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, National Fertilizers has lifted its dividend by approximately 25% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Has National Fertilizers got what it takes to maintain its dividend payments? It's great that National Fertilizers 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. National Fertilizers looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks National Fertilizers is facing. Be aware that National Fertilizers is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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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.