Be Sure To Check Out Godawari Power & Ispat Limited (NSE:GPIL) Before It Goes Ex-Dividend

It looks like Godawari Power & Ispat Limited (NSE:GPIL) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Godawari Power & Ispat's shares before the 16th of August in order to be eligible for the dividend, which will be paid on the 5th of September.

The company's next dividend payment will be ₹6.25 per share. Last year, in total, the company distributed ₹5.00 to shareholders. Calculating the last year's worth of payments shows that Godawari Power & Ispat has a trailing yield of 0.5% on the current share price of ₹1103.25. If you buy this business for its dividend, you should have an idea of whether Godawari Power & Ispat's dividend is reliable and sustainable. As a result, readers should always check whether Godawari Power & Ispat has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Godawari Power & Ispat

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Godawari Power & Ispat is paying out just 6.7% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 8.3% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Godawari Power & 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.

Click here to see how much of its profit Godawari Power & 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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Godawari Power & Ispat has grown its earnings rapidly, up 34% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Godawari Power & Ispat looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Godawari Power & Ispat has increased its dividend at approximately 21% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Godawari Power & Ispat for the upcoming dividend? Godawari Power & 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 10 years, but the conservative payout ratio makes the current dividend look sustainable. Godawari Power & Ispat looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Godawari Power & Ispat for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Godawari Power & Ispat and you should be aware of this before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.