Brand Concepts (NSE:BCONCEPTS) Could Be A Buy For Its Upcoming Dividend

It looks like Brand Concepts Limited (NSE:BCONCEPTS) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase Brand Concepts' shares on or after the 19th of October, you won't be eligible to receive the dividend, when it is paid on the 25th of November.

The upcoming dividend for Brand Concepts will put a total of ₹0.50 per share in shareholders' pockets. 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 investigate whether Brand Concepts can afford its dividend, and if the dividend could grow.

See our latest analysis for Brand Concepts

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. Brand Concepts paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 7.5% of its cash flow last year.

It's positive to see that Brand Concepts'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 Brand Concepts 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 Brand Concepts has grown its earnings rapidly, up 28% a year for the past five years. Brand Concepts 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.

This is Brand Concepts's first year of paying a dividend, so it doesn't have much of a history yet to compare to.

The Bottom Line

Is Brand Concepts worth buying for its dividend? We love that Brand Concepts 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. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Brand Concepts for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 3 warning signs for Brand Concepts you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.