Is It Smart To Buy Chalet Hotels Limited (NSE:CHALET) 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 Chalet Hotels Limited (NSE:CHALET) is about to go ex-dividend in just three days. The ex-dividend date is commonly two business days 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 can take two business days or more to settle. Accordingly, Chalet Hotels investors that purchase the stock on or after the 11th of September will not receive the dividend, which will be paid on the 21st of October.
The company's next dividend payment will be ₹1.00 per share, and in the last 12 months, the company paid a total of ₹2.00 per share. Based on the last year's worth of payments, Chalet Hotels has a trailing yield of 0.2% on the current stock price of ₹896.75. 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 Chalet Hotels can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Chalet Hotels has a low and conservative payout ratio of just 6.8% of its income after tax. A useful secondary check can be to evaluate whether Chalet Hotels generated enough free cash flow to afford its dividend. The good news is it paid out just 3.0% of its free cash flow in the 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.
Check out our latest analysis for Chalet Hotels
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Chalet Hotels's earnings have been skyrocketing, up 55% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Chalet Hotels looks like a promising growth company.
Unfortunately Chalet Hotels 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
Is Chalet Hotels worth buying for its dividend? Chalet Hotels 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. There's a lot to like about Chalet Hotels, and we would prioritise taking a closer look at it.
While it's tempting to invest in Chalet Hotels for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Chalet Hotels you should know about.
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.