Three Days Left To Buy Sharda Cropchem Limited (NSE:SHARDACROP) Before The Ex-Dividend Date

Sharda Cropchem Limited (NSE:SHARDACROP) stock is about to trade ex-dividend in 3 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Sharda Cropchem's shares before the 6th of February in order to be eligible for the dividend, which will be paid on the 23rd of February.

The company's next dividend payment will be ₹3.00 per share, on the back of last year when the company paid a total of ₹3.00 to shareholders. Based on the last year's worth of payments, Sharda Cropchem stock has a trailing yield of around 0.5% on the current share price of ₹586.45. If you buy this business for its dividend, you should have an idea of whether Sharda Cropchem's dividend is reliable and sustainable. As a result, readers should always check whether Sharda Cropchem has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Sharda Cropchem

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 85% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 7.8% of its free cash flow 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 the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Sharda Cropchem earnings per share are up 6.7% per annum over the last five years. Decent historical earnings per share growth suggests Sharda Cropchem has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Sharda Cropchem has increased its dividend at approximately 1.8% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Sharda Cropchem? Earnings per share growth has been modest and Sharda Cropchem paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

While it's tempting to invest in Sharda Cropchem for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Sharda Cropchem 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.