GMM Pfaudler Limited (NSE:GMM) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 6th of August will not receive the dividend, which will be paid on the 5th of September.
GMM Pfaudler's next dividend payment will be ₹1.50 per share, on the back of last year when the company paid a total of ₹4.50 to shareholders. Based on the last year's worth of payments, GMM Pfaudler stock has a trailing yield of around 0.4% on the current share price of ₹1199.1. If you buy this business for its dividend, you should have an idea of whether GMM Pfaudler's dividend is reliable and sustainable. So we need to investigate whether GMM Pfaudler can afford its dividend, and if the dividend could grow.
See our latest analysis for GMM Pfaudler
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. GMM Pfaudler is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out more than half (66%) of its free cash flow in the past year, which is within an average range for most companies.
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 GMM Pfaudler paid out over the last 12 months.
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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see GMM Pfaudler has grown its earnings rapidly, up 22% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. GMM Pfaudler has delivered 4.9% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
From a dividend perspective, should investors buy or avoid GMM Pfaudler? 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. GMM Pfaudler looks solid on this analysis overall, and we'd definitely consider investigating it more closely.