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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ester Industries Limited (NSE:ESTER) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 6th of September in order to be eligible for this dividend, which will be paid on the 16th of October.
Ester Industries's next dividend payment will be ₹0.50 per share, and in the last 12 months, the company paid a total of ₹0.50 per share. Calculating the last year's worth of payments shows that Ester Industries has a trailing yield of 1.6% on the current share price of ₹31.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Ester Industries
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. Ester Industries is paying out just 8.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
Click here to see how much of its profit Ester Industries 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Ester Industries's earnings have been skyrocketing, up 34% per annum for the past five years. Ester Industries earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ester Industries's dividend payments are broadly unchanged compared to where they were ten years ago.
The Bottom Line
Is Ester Industries worth buying for its dividend? Ester Industries has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Ester Industries, and we would prioritise taking a closer look at it.