Read This Before Considering Parag Milk Foods Limited (NSE:PARAGMILK) For Its Upcoming ₹0.50 Dividend

Simply Wall St · 08/31 02:03

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Parag Milk Foods Limited (NSE:PARAGMILK) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Parag Milk Foods' shares on or after the 4th of September will not receive the dividend, which will be paid on the 11th of October.

The company's next dividend payment will be ₹0.50 per share. Last year, in total, the company distributed ₹0.50 to shareholders. Based on the last year's worth of payments, Parag Milk Foods stock has a trailing yield of around 0.3% on the current share price of ₹190.85. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Parag Milk Foods

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Parag Milk Foods is paying out just 6.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

Click here to see how much of its profit Parag Milk Foods paid out over the last 12 months.

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NSEI:PARAGMILK Historic Dividend August 31st 2024

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Parag Milk Foods's 11% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Parag Milk Foods's dividend payments are effectively flat on where they were seven years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

The Bottom Line

Should investors buy Parag Milk Foods for the upcoming dividend? Parag Milk Foods's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. Overall, Parag Milk Foods looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

So while Parag Milk Foods looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for Parag Milk Foods (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.