Here’s What We Like About Aditya Vision’s (NSE:AVL) Upcoming Dividend

It looks like Aditya Vision Limited (NSE:AVL) is about to go ex-dividend in the next three days. The ex-dividend date is commonly two business days 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 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. In other words, investors can purchase Aditya Vision’s shares before the 26th of August in order to be eligible for the dividend, which will be paid on the 2nd of October.

The company’s next dividend payment will be ₹1.25 per share, on the back of last year when the company paid a total of ₹1.25 to shareholders. Looking at the last 12 months of distributions, Aditya Vision has a trailing yield of approximately 0.2% on its current stock price of ₹601.35. If you buy this business for its dividend, you should have an idea of whether Aditya Vision’s dividend is reliable and sustainable. So we need to investigate whether Aditya Vision can afford its dividend, and if the dividend could grow.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Aditya Vision is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Aditya Vision generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.

It’s positive to see that Aditya Vision’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.

Check out our latest analysis for Aditya Vision

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Aditya Vision has grown its earnings rapidly, up 45% a year for the past five years. Aditya Vision is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the last seven years, Aditya Vision has lifted its dividend by approximately 58% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Aditya Vision? We love that Aditya Vision 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. There’s a lot to like about Aditya Vision, and we would prioritise taking a closer look at it.

So while Aditya Vision looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we’ve identified 1 warning sign with Aditya Vision and understanding them should be part of your investment process.

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.