Paradeep Phosphates Limited (NSE:PARADEEP) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Paradeep Phosphates Limited (NSE:PARADEEP) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Paradeep Phosphates investors that purchase the stock on or after the 22nd of August will not receive the dividend, which will be paid on the 12th of October.

The company's upcoming dividend is ₹1.00 a share, following on from the last 12 months, when the company distributed a total of ₹1.00 per share to shareholders. Looking at the last 12 months of distributions, Paradeep Phosphates has a trailing yield of approximately 0.5% on its current stock price of ₹200.07. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Paradeep Phosphates has a low and conservative payout ratio of just 15% of its income after tax. A useful secondary check can be to evaluate whether Paradeep Phosphates generated enough free cash flow to afford its dividend. It paid out 4.0% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Paradeep Phosphates'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.

Check out our latest analysis for Paradeep Phosphates

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. 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 Paradeep Phosphates's earnings have been skyrocketing, up 24% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Paradeep Phosphates looks like a promising growth company.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Paradeep Phosphates has delivered an average of 41% per year annual increase in its dividend, based on the past two years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Paradeep Phosphates an attractive dividend stock, or better left on the shelf? We love that Paradeep Phosphates is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Paradeep Phosphates looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Paradeep Phosphates for the dividends alone, you should always be mindful of the risks involved. For example - Paradeep Phosphates has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.