Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Amrutanjan Health Care Limited (NSE:AMRUTANJAN) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 19th of November, you won't be eligible to receive this dividend, when it is paid on the 12th of December.
Amrutanjan Health Care's upcoming dividend is ₹0.80 a share, following on from the last 12 months, when the company distributed a total of ₹1.10 per share to shareholders. Based on the last year's worth of payments, Amrutanjan Health Care has a trailing yield of 0.3% on the current stock price of ₹474.05. If you buy this business for its dividend, you should have an idea of whether Amrutanjan Health Care's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Amrutanjan Health Care has a low and conservative payout ratio of just 10.0% of its income after tax. 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 40% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Amrutanjan Health Care'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.
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 fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Amrutanjan Health Care's earnings per share have risen 17% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Amrutanjan Health Care has lifted its dividend by approximately 0.6% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
From a dividend perspective, should investors buy or avoid Amrutanjan Health Care? Amrutanjan Health Care 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. There's a lot to like about Amrutanjan Health Care, and we would prioritise taking a closer look at it.
Keen to explore more data on Amrutanjan Health Care's financial performance? Check out our visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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