Is It Smart To Buy GMM Pfaudler Limited (NSE:GMMPFAUDLR) Before It Goes Ex-Dividend?

It looks like GMM Pfaudler Limited (NSE:GMMPFAUDLR) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Thus, you can purchase GMM Pfaudler's shares before the 2nd of August in order to receive the dividend, which the company will pay on the 5th of September.

The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹2.00 to shareholders. Based on the last year's worth of payments, GMM Pfaudler stock has a trailing yield of around 0.1% on the current share price of ₹1458.00. If you buy this business for its dividend, you should have an idea of whether GMM Pfaudler's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for GMM Pfaudler

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. GMM Pfaudler has a low and conservative payout ratio of just 5.0% of its income after tax. A useful secondary check can be to evaluate whether GMM Pfaudler generated enough free cash flow to afford its dividend. It paid out 4.0% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that GMM Pfaudler'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 how much of its profit GMM Pfaudler paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see GMM Pfaudler's earnings have been skyrocketing, up 28% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, GMM Pfaudler looks like a promising growth company.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. GMM Pfaudler has delivered 7.9% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is GMM Pfaudler an attractive dividend stock, or better left on the shelf? GMM Pfaudler has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about GMM Pfaudler, and we would prioritise taking a closer look at it.

So while GMM Pfaudler looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for GMM Pfaudler you should know about.

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

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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.

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