Is It Smart To Buy CCL Products (India) Limited (NSE:CCL) Before It Goes Ex-Dividend?
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that CCL Products (India) Limited (NSE:CCL) is about to go ex-dividend in just three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase CCL Products (India)'s shares before the 1st of September to receive the dividend, which will be paid on the 30th of September.
The company's upcoming dividend is ₹3.00 a share, following on from the last 12 months, when the company distributed a total of ₹6.00 per share to shareholders. Based on the last year's worth of payments, CCL Products (India) has a trailing yield of 0.5% on the current stock price of ₹1111.50. If you buy this business for its dividend, you should have an idea of whether CCL Products (India)'s dividend is reliable and sustainable. So we need to investigate whether CCL Products (India) can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. CCL Products (India) is paying out just 20% 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 CCL Products (India) generated enough free cash flow to afford its dividend. It paid out 13% of its free cash flow as dividends last year, which is conservatively low.
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.
View our latest analysis for CCL Products (India)
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. For this reason, we're glad to see CCL Products (India)'s earnings per share have risen 19% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CCL Products (India) has delivered 7.2% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Is CCL Products (India) worth buying for its dividend? It's great that CCL Products (India) is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.
On that note, you'll want to research what risks CCL Products (India) is facing. For example - CCL Products (India) has 2 warning signs we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.