Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see SMS Pharmaceutical Limited (NSE: SMSPHARMA) is set to trade off dividend within the next three days. The ex-dividend date occurs one day before the registration date which is the day on which shareholders must be entered in the books of the company to receive a dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. Therefore, if you buy SMS Pharmaceuticals shares on or after September 22, you will not be eligible to receive the dividend, when it is paid on October 30.
The company’s upcoming dividend is 0.30 per share, continuing the past 12 months when the company has distributed a total of 0.30 per share to shareholders. Based on the value of last year’s payouts, the SMS Pharmaceuticals share has a rolling yield of around 0.2% on the current share price of 160.5. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! That is why we should always check whether dividend payments seem sustainable and whether the business is growing.
Check out our latest review for SMS Pharmaceuticals
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. SMS Pharmaceuticals pays only 3.2% of its after-tax profit, which is comfortably low and leaves a lot of leeway in the event of adverse events. SMS Pharmaceuticals paid a dividend despite negative free cash flow over the past twelve months. This may be due to heavy investments in the company, but it remains sub-optimal from a dividend sustainability perspective.
Click here to see how much of its profits SMS Pharmaceuticals has paid in the past 12 months.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. Luckily for readers, SMS Pharmaceuticals’ earnings per share have grown 14% per year over the past five years.
Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Since our data began 10 years ago, SMS Pharmaceuticals has increased its dividend by around 12% per year on average. Both earnings per share and dividends have been rising rapidly lately, which is great to see.
The bottom line
Should investors buy SMS Pharmaceuticals for the next dividend? When companies grow rapidly and keep the majority of profits within the company, it is usually a sign that reinvesting profits is creating more value than paying dividends to shareholders. Perhaps even more important – it can sometimes indicate that management is focused on the long-term future of the business. SMS Pharmaceuticals ticks a lot of the boxes for us from a dividend perspective, and we believe these characteristics should mark the company as deserving more attention.
On that note, you’ll want to research the risks that SMS Pharmaceuticals faces. To help you, we have discovered 1 warning sign for SMS Pharmaceuticals which you should know before investing in their stocks.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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