Should Income Investors Look At Creative Peripherals and Distribution Limited (NSE:CREATIVE) Before Its Ex-Dividend?

Creative Peripherals and Distribution Limited (NSE:CREATIVE) stock is about to trade ex-dividend in 2 days time. Ex-dividend means that investors that purchase the stock on or after the 19th of September will not receive this dividend, which will be paid on the 23rd of October.

The upcoming dividend for Creative Peripherals and Distribution is ₹0.50 per share, increased from last year’s total dividends per share of ₹0.25. 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.

View our latest analysis for Creative Peripherals and Distribution

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. Creative Peripherals and Distribution is paying out just 4.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Creative Peripherals and Distribution paid a dividend despite reporting negative free cash flow last year. That’s typically a bad combination and – if this were more than a one-off – not sustainable.

It’s positive to see that Creative Peripherals and Distribution’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 Creative Peripherals and Distribution paid out over the last 12 months.

NSEI:CREATIVE Historical Dividend Yield, September 16th 2019
NSEI:CREATIVE Historical Dividend Yield, September 16th 2019

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That’s why it’s comforting to see Creative Peripherals and Distribution’s earnings have been skyrocketing, up 21% per annum for the past five years.

Creative Peripherals and Distribution also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It’s hard to grow dividends per share when a company keeps creating new shares.

Unfortunately Creative Peripherals and Distribution has only been paying a dividend for a year or so, so there’s not much of a history to draw insight from.

To Sum It Up

Is Creative Peripherals and Distribution worth buying for its dividend? We’re glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it’s not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it’s hard to get excited about Creative Peripherals and Distribution from a dividend perspective.

Want to learn more about Creative Peripherals and Distribution’s dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.