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Readers hoping to buy Shiva Mills Limited (NSE:SHIVAMILLS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 8th of August will not receive this dividend, which will be paid on the 17th of September.
Shiva Mills's next dividend payment will be ₹1.40 per share. Last year, in total, the company distributed ₹1.40 to shareholders. Based on the last year's worth of payments, Shiva Mills has a trailing yield of 3.8% on the current stock price of ₹36.65. 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 Shiva Mills can afford its dividend, and if the dividend could grow.
View our latest analysis for Shiva Mills
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. Shiva Mills is paying out just 18% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 8.8% of its free cash flow 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.
Click here to see how much of its profit Shiva Mills paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, it's good to see earnings have grown 8.1% on last year. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.
Given that Shiva Mills has only been paying a dividend for a year, there's not much of a past history to draw insight from.