There's A Lot To Like About Navneet Education's (NSE:NAVNETEDUL) Upcoming ₹1.50 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Navneet Education Limited (NSE:NAVNETEDUL) is about to trade ex-dividend in the next 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Navneet Education's shares before the 20th of November in order to receive the dividend, which the company will pay on the 5th of December.

The company's upcoming dividend is ₹1.50 a share, following on from the last 12 months, when the company distributed a total of ₹2.60 per share to shareholders. Looking at the last 12 months of distributions, Navneet Education has a trailing yield of approximately 1.9% on its current stock price of ₹135.84. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Navneet Education has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Navneet Education

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Navneet Education is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Navneet Education'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 how much of its profit Navneet Education 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. 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 Navneet Education has grown its earnings rapidly, up 38% a year for the past five years. Navneet Education 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Navneet Education has lifted its dividend by approximately 2.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Navneet Education is keeping back more of its profits to grow the business.

To Sum It Up

Is Navneet Education an attractive dividend stock, or better left on the shelf? Navneet Education has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Navneet Education for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 3 warning signs for Navneet Education (of which 2 don't sit too well with us!) you should know about.

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.