Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Laurus Labs Limited (NSE:LAURUSLABS) is about to trade ex-dividend in the next three days. If you purchase the stock on or after the 8th of February, you won't be eligible to receive this dividend, when it is paid on the 27th of February.
Laurus Labs's upcoming dividend is ₹0.40 a share, following on from the last 12 months, when the company distributed a total of ₹1.20 per share to shareholders. Last year's total dividend payments show that Laurus Labs has a trailing yield of 0.3% on the current share price of ₹341.7. 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.
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. Laurus Labs is paying out just 9.4% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. The good news is it paid out just 21% of its free cash flow in the 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.
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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Laurus Labs has grown its earnings rapidly, up 46% a year for the past five years. Laurus Labs 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Laurus Labs has delivered an average of 41% per year annual increase in its dividend, based on the past four years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Should investors buy Laurus Labs for the upcoming dividend? We love that Laurus Labs is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Laurus Labs is facing. Our analysis shows 1 warning sign for Laurus Labs and you should be aware of this before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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