Vidhi Specialty Food Ingredients Limited (NSE:VIDHIING) Passed Our Checks, And It's About To Pay A ₹1.00 Dividend

It looks like Vidhi Specialty Food Ingredients Limited (NSE:VIDHIING) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Vidhi Specialty Food Ingredients' shares before the 20th of November in order to receive the dividend, which the company will pay on the 11th of December.

The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹2.60 to shareholders. Based on the last year's worth of payments, Vidhi Specialty Food Ingredients has a trailing yield of 0.5% on the current stock price of ₹494.50. 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.

See our latest analysis for Vidhi Specialty Food Ingredients

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. Vidhi Specialty Food Ingredients has a low and conservative payout ratio of just 21% of its income after tax. A useful secondary check can be to evaluate whether Vidhi Specialty Food Ingredients generated enough free cash flow to afford its dividend. Dividends consumed 66% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 how much of its profit Vidhi Specialty Food Ingredients paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Vidhi Specialty Food Ingredients, with earnings per share up 5.4% on average over the last five years. Decent historical earnings per share growth suggests Vidhi Specialty Food Ingredients has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Vidhi Specialty Food Ingredients has delivered an average of 29% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy Vidhi Specialty Food Ingredients for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that Vidhi Specialty Food Ingredients is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's hard to get excited about Vidhi Specialty Food Ingredients from a dividend perspective.

In light of that, while Vidhi Specialty Food Ingredients has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 1 warning sign with Vidhi Specialty Food Ingredients and understanding them should be part of your investment process.

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.