NATCO Pharma Limited (NSE:NATCOPHARM) is going ex-dividend in the next 4 days. The ex-dividend date is usually set one business day before the record date, which is the cut-off date by which you must be on the company’s books as a shareholder to receive the dividend. The ex-dividend date is important because all transactions in the stock must have settled before the record date to be eligible to receive the dividend. This means that investors who bought NATCO Pharma shares after the 23rd of August will not be able to receive the dividend paid on the 11th of September.
The company’s next dividend will be ₹ 3.00 per share, after paying a total of ₹ 9.50 to shareholders last year. Based on last year’s payments, NATCO Pharma shares have a historical yield of around 0.6% on the current share price of ₹ 1461.95. While it’s nice to see a company pay a dividend, it’s also important to ensure that you don’t kill the golden eggs by laying them. Therefore, readers should always check whether NATCO Pharma has managed to grow its dividend or if the dividend might be cut.
Check out our latest analysis for NATCO Pharma
Dividends are typically paid out of company profits, so if a company pays out more than it earned, there is a higher risk that the dividend will be cut. NATCO Pharma has a low dividend payout ratio, at just 6.0% of its profits after tax. A second useful check is to assess whether NATCO Pharma generated enough free cash flow to pay its dividend. The positive is that the dividend is well covered by free cash flow, and last year it paid out 20% of cash flow.
It’s encouraging to see that the dividend is covered by both profits and cash flow, as this generally suggests the dividend is sustainable, as long as earnings don’t fall precipitously.
Click here to see the company’s dividend payout ratio, plus analyst estimates of its future dividends.
NSEI:NATCOPHARM August 18, 2024 Highest dividend ever
Are profits and dividends increasing?
Companies with growth prospects are usually the best candidates to pay dividends, as it is easier to grow dividends when earnings per share are improving. If earnings fall significantly, a company may be forced to cut the dividend. It’s good to see that NATCO Pharma’s profits have been growing rapidly, at 21% per year over the past five years. NATCO Pharma’s earnings per share are like a road runner sprinting, barely stopping at the slightest “beep beep”. We also like that the company is reinvesting most of its profits back into the business.
The primary way most investors assess a company’s dividend prospects is to look at the historical rate of dividend growth. Over the past decade, NATCO Pharma has averaged roughly 25% annual dividend growth. Both earnings per share and dividends have been growing rapidly recently, which is great to see.
summary
From a dividend perspective, should investors buy or avoid NATCO Pharma? NATCO Pharma has grown earnings per share at the same time as reinvesting in the business. Unfortunately, the company has cut its dividend at least once in the last decade, but a conservative payout ratio makes the current dividend look sustainable. Overall, we think this is an attractive combination and one that’s worth investigating further.
With that in mind, NATCO Pharma’s dividend is attractive, but it’s worth knowing about the risks associated with this stock. We’ve identified 2 warning signs with NATCO Pharma (at least 1 which is concerning) and understanding them should be part of your investment process.
Generally speaking, we don’t recommend just buying the first dividend stock you see, so here we present a curated list of interesting stocks with high dividends.
Valuation is complicated, but we’re here to simplify it.
A detailed analysis including fair value estimates, underlying risks, dividends, insider transactions, financial position, etc. will determine whether NATCO Pharma is undervalued or overvalued.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.