Don't Buy Colgate-Palmolive (India) Limited (NSE:COLPAL) For Its Next Dividend Without Doing These Checks
Colgate-Palmolive (India) Limited (NSE:COLPAL) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Colgate-Palmolive (India)'s shares before the 1st of June in order to receive the dividend, which the company will pay on the 21st of June.
The company's next dividend payment will be ₹24.00 per share, and in the last 12 months, the company paid a total of ₹48.00 per share. Calculating the last year's worth of payments shows that Colgate-Palmolive (India) has a trailing yield of 2.3% on the current share price of ₹2087.40. If you buy this business for its dividend, you should have an idea of whether Colgate-Palmolive (India)'s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Colgate-Palmolive (India) paid out 99% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Colgate-Palmolive (India) generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's good to see that while Colgate-Palmolive (India)'s dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Check out our latest analysis for Colgate-Palmolive (India)
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. This is why it's a relief to see Colgate-Palmolive (India) earnings per share are up 5.1% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Colgate-Palmolive (India) has delivered an average of 9.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Colgate-Palmolive (India) worth buying for its dividend? While earnings per share have been growing slowly, Colgate-Palmolive (India) is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. Bottom line: Colgate-Palmolive (India) has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Although, if you're still interested in Colgate-Palmolive (India) and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for Colgate-Palmolive (India) and you should be aware of it before buying any shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.