Should Income Investors Look At AstraZeneca Pharma India Limited (NSE:ASTRAZEN) Before Its Ex-Dividend?

It looks like AstraZeneca Pharma India Limited (NSE:ASTRAZEN) is about to go ex-dividend in the next 4 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. Accordingly, AstraZeneca Pharma India investors that purchase the stock on or after the 5th of July will not receive the dividend, which will be paid on the 6th of September.

The company's next dividend payment will be ₹24.00 per share. Last year, in total, the company distributed ₹24.00 to shareholders. Last year's total dividend payments show that AstraZeneca Pharma India has a trailing yield of 0.4% on the current share price of ₹6250.75. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for AstraZeneca Pharma India

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. AstraZeneca Pharma India paid out a comfortable 37% of its profit last year. 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 an unsustainably high 234% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how AstraZeneca Pharma India intends to continue funding this dividend, or if it could be forced to cut the payment.

While AstraZeneca Pharma India's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to AstraZeneca Pharma India's ability to maintain its dividend.

Click here to see how much of its profit AstraZeneca Pharma India paid out over the last 12 months.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see AstraZeneca Pharma India has grown its earnings rapidly, up 24% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, five years ago, AstraZeneca Pharma India has lifted its dividend by approximately 64% a year on average. 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

Should investors buy AstraZeneca Pharma India for the upcoming dividend? We like that AstraZeneca Pharma India has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. In summary, it's hard to get excited about AstraZeneca Pharma India from a dividend perspective.

While it's tempting to invest in AstraZeneca Pharma India for the dividends alone, you should always be mindful of the risks involved. Be aware that AstraZeneca Pharma India is showing 2 warning signs in our investment analysis, and 1 of those is significant...

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.

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