Is It Smart To Buy Tribhovandas Bhimji Zaveri Limited (NSE:TBZ) Before It Goes Ex-Dividend?

Tribhovandas Bhimji Zaveri Limited (NSE:TBZ) is about to trade ex-dividend in the next 3 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, Tribhovandas Bhimji Zaveri investors that purchase the stock on or after the 3rd of September will not receive the dividend, which will be paid on the 10th of October.

The company's upcoming dividend is ₹1.75 a share, following on from the last 12 months, when the company distributed a total of ₹1.75 per share to shareholders. Based on the last year's worth of payments, Tribhovandas Bhimji Zaveri has a trailing yield of 0.9% on the current stock price of ₹198.74. 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.

See our latest analysis for Tribhovandas Bhimji Zaveri

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Tribhovandas Bhimji Zaveri paid out just 21% 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. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.

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 Tribhovandas Bhimji Zaveri 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. That's why it's comforting to see Tribhovandas Bhimji Zaveri's earnings have been skyrocketing, up 31% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

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, Tribhovandas Bhimji Zaveri has lifted its dividend by approximately 1.6% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Tribhovandas Bhimji Zaveri is keeping back more of its profits to grow the business.

The Bottom Line

From a dividend perspective, should investors buy or avoid Tribhovandas Bhimji Zaveri? Tribhovandas Bhimji Zaveri 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. Tribhovandas Bhimji Zaveri looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Tribhovandas Bhimji Zaveri looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 3 warning signs for Tribhovandas Bhimji Zaveri (of which 1 is significant!) you should know about.

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.

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

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.