Here's What We Like About Ducol Organics And Colours' (NSE:DUCOL) Upcoming Dividend

Readers hoping to buy Ducol Organics And Colours Limited (NSE:DUCOL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Ducol Organics And Colours' shares on or after the 5th of September, you won't be eligible to receive the dividend, when it is paid on the 13th of October.

The company's next dividend payment will be ₹0.50 per share, on the back of last year when the company paid a total of ₹0.50 to shareholders. Calculating the last year's worth of payments shows that Ducol Organics And Colours has a trailing yield of 0.4% on the current share price of ₹123.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Ducol Organics And Colours has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Ducol Organics And Colours

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ducol Organics And Colours paid out just 16% 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. Fortunately, it paid out only 38% of its free cash flow in the past 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 how much of its profit Ducol Organics And Colours paid out over the last 12 months.

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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Ducol Organics And Colours has grown its earnings rapidly, up 115% a year for the past five years. Ducol Organics And Colours is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. 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.

Ducol Organics And Colours 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. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Unfortunately Ducol Organics And Colours has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Has Ducol Organics And Colours got what it takes to maintain its dividend payments? Ducol Organics And Colours has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Ducol Organics And Colours has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 3 warning signs for Ducol Organics And Colours that we recommend you consider before investing in the business.

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