There's A Lot To Like About Supreme Petrochem's (NSE:SPLPETRO) Upcoming ₹2.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Supreme Petrochem Limited (NSE:SPLPETRO) is about to trade ex-dividend in the next three days. 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. 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. Meaning, you will need to purchase Supreme Petrochem's shares before the 27th of June to receive the dividend, which will be paid on the 3rd of August.

The company's upcoming dividend is ₹2.00 a share, following on from the last 12 months, when the company distributed a total of ₹9.00 per share to shareholders. Based on the last year's worth of payments, Supreme Petrochem stock has a trailing yield of around 1.1% on the current share price of ₹797.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Supreme Petrochem can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Supreme Petrochem

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Supreme Petrochem's payout ratio is modest, at just 49% 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. It paid out more than half (69%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Supreme Petrochem'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Supreme Petrochem has grown its earnings rapidly, up 49% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Supreme Petrochem has delivered 22% dividend growth per year on average over the past 10 years. 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

From a dividend perspective, should investors buy or avoid Supreme Petrochem? Earnings per share have grown at a nice rate in recent times and over the last year, Supreme Petrochem paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Supreme Petrochem, and we would prioritise taking a closer look at it.

While it's tempting to invest in Supreme Petrochem for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Supreme Petrochem and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com