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It looks like Godrej Agrovet Limited (NSE:GODREJAGRO) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 25th of July, you won't be eligible to receive this dividend, when it is paid on the 9th of August.

Godrej Agrovet's next dividend payment will be ₹4.50 per share, and in the last 12 months, the company paid a total of ₹4.50 per share. Based on the last year's worth of payments, Godrej Agrovet has a trailing yield of 0.9% on the current stock price of ₹486.55. If you buy this business for its dividend, you should have an idea of whether Godrej Agrovet's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Godrej Agrovet

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. That's why it's good to see Godrej Agrovet paying out a modest 26% of its earnings. 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. It paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Godrej Agrovet'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.

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. For this reason, we're glad to see Godrej Agrovet's earnings per share have risen 19% per annum over the last five years. Godrej Agrovet has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Given that Godrej Agrovet has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Has Godrej Agrovet got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Godrej Agrovet paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

Wondering what the future holds for Godrej Agrovet? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.