Here's What We Like About United Nilgiri Tea Estates' (NSE:UNITEDTEA) Upcoming Dividend
The United Nilgiri Tea Estates Company Limited (NSE:UNITEDTEA) is about to trade ex-dividend in the next 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase United Nilgiri Tea Estates' shares before the 31st of July to receive the dividend, which will be paid on the 6th of September.
The company's next dividend payment will be ₹2.20 per share. Last year, in total, the company distributed ₹3.20 to shareholders. Looking at the last 12 months of distributions, United Nilgiri Tea Estates has a trailing yield of approximately 0.7% on its current stock price of ₹469.80. If you buy this business for its dividend, you should have an idea of whether United Nilgiri Tea Estates's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. United Nilgiri Tea Estates paid out just 7.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 16% of its free cash flow in the last year.
It's positive to see that United Nilgiri Tea Estates's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
See our latest analysis for United Nilgiri Tea Estates
Click here to see how much of its profit United Nilgiri Tea Estates paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see United Nilgiri Tea Estates's earnings per share have risen 12% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. United Nilgiri Tea Estates has delivered 1.7% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Should investors buy United Nilgiri Tea Estates for the upcoming dividend? We love that United Nilgiri Tea Estates is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.
In light of that, while United Nilgiri Tea Estates has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 1 warning sign for United Nilgiri Tea Estates you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.