Be Sure To Check Out Worth Peripherals Limited (NSE:WORTH) Before It Goes Ex

Stock Analysis

Readers hoping to buy Worth Peripherals Limited (NSE:WORTH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Worth Peripherals' shares on or after the 22nd of August, you won't be eligible to receive the dividend, when it is paid on the 28th of September.

The company's upcoming dividend is ₹1.00 a share, following on from the last 12 months, when the company distributed a total of ₹1.00 per share to shareholders. Based on the last year's worth of payments, Worth Peripherals has a trailing yield of 1.0% on the current stock price of ₹104.45. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Worth Peripherals

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Worth Peripherals paid out just 8.7% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 1.5% of its free cash flow in the last year.

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.

Click here to see how much of its profit Worth Peripherals paid out over the last 12 months.

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Worth Peripherals's earnings per share have risen 15% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Worth Peripherals has seen its dividend decline 14% per annum on average over the past four years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

From a dividend perspective, should investors buy or avoid Worth Peripherals? Worth Peripherals has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past four years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Worth Peripherals, and we would prioritise taking a closer look at it.

While it's tempting to invest in Worth Peripherals for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Worth Peripherals you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Find out whether Worth Peripherals is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Worth Peripherals Limited manufactures and sells corrugated boxes in India.

Flawless balance sheet and good value.