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Readers hoping to buy Banco Products (India) Limited (NSE:BANCOINDIA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 7th of August, you won't be eligible to receive this dividend, when it is paid on the 25th of September.
Banco Products (India)'s next dividend payment will be ₹3.00 per share, on the back of last year when the company paid a total of ₹8.00 to shareholders. Last year's total dividend payments show that Banco Products (India) has a trailing yield of 8.3% on the current share price of ₹95.6. 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 check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Banco Products (India)
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. Banco Products (India) is paying out an acceptable 69% of its profit, a common payout level among most companies.
Click here to see how much of its profit Banco Products (India) paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Banco Products (India)'s flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Banco Products (India) has delivered 18% dividend growth per year on average over the past 10 years.
The Bottom Line
Should investors buy Banco Products (India) for the upcoming dividend? We're not enthused by the flat earnings per share, although at least the company's payout ratio is within reasonable bounds. Additionally, it paid out a lower percentage of its free cash flow, so at least it generated more cash than it spent on dividends. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.