Gravita India Limited (NSE:GRAVITA) Passed Our Checks, And It's About To Pay A ₹1.10 Dividend

By
Simply Wall St
Published
February 03, 2021
NSEI:GRAVITA
Source: Shutterstock

Readers hoping to buy Gravita India Limited (NSE:GRAVITA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 8th of February in order to receive the dividend, which the company will pay on the 26th of February.

Gravita India's upcoming dividend is ₹1.10 a share, following on from the last 12 months, when the company distributed a total of ₹1.10 per share to shareholders. Looking at the last 12 months of distributions, Gravita India has a trailing yield of approximately 1.4% on its current stock price of ₹77.85. If you buy this business for its dividend, you should have an idea of whether Gravita India's dividend is reliable and sustainable. As a result, readers should always check whether Gravita India has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Gravita India

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. Gravita India is paying out just 17% 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. Luckily it paid out just 13% of its free cash flow last year.

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 Gravita India paid out over the last 12 months.

historic-dividend
NSEI:GRAVITA Historic Dividend February 4th 2021

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Gravita India has grown its earnings rapidly, up 46% a year for the past five years. Gravita India looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Gravita India has delivered 3.2% 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.

Final Takeaway

Should investors buy Gravita India for the upcoming dividend? Gravita India 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. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Gravita India is facing. To help with this, we've discovered 4 warning signs for Gravita India that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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