Here's What We Like About Garden Reach Shipbuilders & Engineers' (NSE:GRSE) Upcoming Dividend

Garden Reach Shipbuilders & Engineers Limited (NSE:GRSE) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 17th of February will not receive the dividend, which will be paid on the 11th of March.

Garden Reach Shipbuilders & Engineers's upcoming dividend is ₹3.85 a share, following on from the last 12 months, when the company distributed a total of ₹5.25 per share to shareholders. Based on the last year's worth of payments, Garden Reach Shipbuilders & Engineers stock has a trailing yield of around 2.6% on the current share price of ₹198.25. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Garden Reach Shipbuilders & Engineers can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Garden Reach Shipbuilders & Engineers

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Garden Reach Shipbuilders & Engineers paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. 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 15% of its free cash flow as dividends last year, which is conservatively low.

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 Garden Reach Shipbuilders & Engineers paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Garden Reach Shipbuilders & Engineers has grown its earnings rapidly, up 25% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Garden Reach Shipbuilders & Engineers has delivered 19% dividend growth per year on average over the past two years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy Garden Reach Shipbuilders & Engineers for the upcoming dividend? Garden Reach Shipbuilders & Engineers's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

So while Garden Reach Shipbuilders & Engineers looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 1 warning sign for Garden Reach Shipbuilders & Engineers that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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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