Should You Buy Gallantt Ispat Limited (NSE:GALLANTT) For Its Upcoming Dividend?

Gallantt Ispat Limited (NSE:GALLANTT) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Gallantt Ispat's shares on or after the 12th of September, you won't be eligible to receive the dividend, when it is paid on the 27th of October.

The company's upcoming dividend is ₹1.25 a share, following on from the last 12 months, when the company distributed a total of ₹1.25 per share to shareholders. Last year's total dividend payments show that Gallantt Ispat has a trailing yield of 0.2% on the current share price of ₹640.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Gallantt Ispat has been able to grow its dividends, or if the dividend might be cut.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Gallantt Ispat is paying out just 7.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Gallantt Ispat generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 2.7% of its cash flow last year.

It's positive to see that Gallantt Ispat'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.

View our latest analysis for Gallantt Ispat

Click here to see how much of its profit Gallantt Ispat 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 Gallantt Ispat has grown its earnings rapidly, up 47% a year for the past five years. Gallantt Ispat earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, seven years ago, Gallantt Ispat has lifted its dividend by approximately 26% a year on average. 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 Gallantt Ispat for the upcoming dividend? Gallantt Ispat has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past seven years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Gallantt Ispat, and we would prioritise taking a closer look at it.

So while Gallantt Ispat 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 Gallantt Ispat that you should be aware of before investing in their shares.

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.