Is It Smart To Buy Amrutanjan Health Care Limited (NSE:AMRUTANJAN) Before It Goes Ex-Dividend?

Amrutanjan Health Care Limited (NSE:AMRUTANJAN) stock is about to trade ex-dividend in couple of days. Investors can purchase shares before the 17th of February in order to be eligible for this dividend, which will be paid on the 13th of March.

Amrutanjan Health Care's next dividend payment will be ₹0.80 per share, and in the last 12 months, the company paid a total of ₹1.60 per share. Last year's total dividend payments show that Amrutanjan Health Care has a trailing yield of 0.3% on the current share price of ₹586.95. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Amrutanjan Health Care

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. Amrutanjan Health Care is paying out just 7.9% 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. Luckily it paid out just 8.4% 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 how much of its profit Amrutanjan Health Care 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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Amrutanjan Health Care has grown its earnings rapidly, up 32% a year for the past five years. Amrutanjan Health Care looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

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. Earnings per share have been growing much quicker than dividends, potentially because Amrutanjan Health Care is keeping back more of its profits to grow the business.

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. Amrutanjan Health Care looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 1 warning sign for Amrutanjan Health Care you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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