Should You Buy J.G. Chemicals Limited (NSE:JGCHEM) For Its Upcoming Dividend?
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see J.G. Chemicals Limited (NSE:JGCHEM) is about to trade ex-dividend in the next three days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, J.G. Chemicals investors that purchase the stock on or after the 23rd of September will not receive the dividend, which will be paid on the 30th of October.
The company's upcoming dividend is ₹1.10 a share, following on from the last 12 months, when the company distributed a total of ₹1.10 per share to shareholders. Looking at the last 12 months of distributions, J.G. Chemicals has a trailing yield of approximately 0.2% on its current stock price of ₹612.40. 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 investigate whether J.G. Chemicals can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. J.G. Chemicals has a low and conservative payout ratio of just 6.5% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (86%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
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.
View our latest analysis for J.G. Chemicals
Click here to see how much of its profit J.G. Chemicals 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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see J.G. Chemicals has grown its earnings rapidly, up 21% a year for the past five years.
Given that J.G. Chemicals has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Final Takeaway
From a dividend perspective, should investors buy or avoid J.G. Chemicals? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. J.G. Chemicals looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 1 warning sign for J.G. Chemicals that you should be aware of before investing in their shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.