Is It Smart To Buy Gulf Oil Lubricants India Limited (NSE:GULFOILLUB) Before It Goes Ex-Dividend?

By
Simply Wall St
Published
February 11, 2021
NSEI:GULFOILLUB
Source: Shutterstock

It looks like Gulf Oil Lubricants India Limited (NSE:GULFOILLUB) is about to go ex-dividend in the next three days. You can purchase shares before the 16th of February in order to receive the dividend, which the company will pay on the 5th of March.

Gulf Oil Lubricants India's next dividend payment will be ₹7.00 per share. Last year, in total, the company distributed ₹14.00 to shareholders. Last year's total dividend payments show that Gulf Oil Lubricants India has a trailing yield of 1.9% on the current share price of ₹753.2. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Gulf Oil Lubricants India

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Gulf Oil Lubricants India paid out a comfortable 40% of its profit last year. 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 Gulf Oil Lubricants India paid out over the last 12 months.

historic-dividend
NSEI:GULFOILLUB Historic Dividend February 12th 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. Fortunately for readers, Gulf Oil Lubricants India's earnings per share have been growing at 18% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past six years, Gulf Oil Lubricants India has increased its dividend at approximately 23% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Should investors buy Gulf Oil Lubricants India for the upcoming dividend? We love that Gulf Oil Lubricants India is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Gulf Oil Lubricants India for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Gulf Oil Lubricants India 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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