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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sharda Cropchem Limited (NSE:SHARDACROP) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 16th of August, you won't be eligible to receive this dividend, when it is paid on the 26th of September.
Sharda Cropchem's upcoming dividend is ₹2.00 a share, following on from the last 12 months, when the company distributed a total of ₹4.00 per share to shareholders. Based on the last year's worth of payments, Sharda Cropchem stock has a trailing yield of around 1.3% on the current share price of ₹306.35. 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 investigate whether Sharda Cropchem can afford its dividend, and if the dividend could grow.
See our latest analysis for Sharda Cropchem
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. Sharda Cropchem is paying out just 22% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Sharda Cropchem generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 8.7% of its cash flow 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Sharda Cropchem, with earnings per share up 8.2% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.