Read This Before Considering GlaxoSmithKline Pharmaceuticals Limited (NSE:GLAXO) For Its Upcoming ₹42.00 Dividend

Readers hoping to buy GlaxoSmithKline Pharmaceuticals Limited (NSE:GLAXO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase GlaxoSmithKline Pharmaceuticals' shares on or after the 30th of May will not receive the dividend, which will be paid on the 27th of July.

The company's next dividend payment will be ₹42.00 per share. Last year, in total, the company distributed ₹42.00 to shareholders. Based on the last year's worth of payments, GlaxoSmithKline Pharmaceuticals has a trailing yield of 1.4% on the current stock price of ₹3020.90. 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 check whether the dividend payments are covered, and if earnings are growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 77% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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 more than half (59%) of its free cash flow in the past year, which is within an average range for most companies.

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.

View our latest analysis for GlaxoSmithKline Pharmaceuticals

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see GlaxoSmithKline Pharmaceuticals has grown its earnings rapidly, up 58% a year for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. GlaxoSmithKline Pharmaceuticals has delivered 3.0% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because GlaxoSmithKline Pharmaceuticals is keeping back more of its profits to grow the business.

To Sum It Up

Is GlaxoSmithKline Pharmaceuticals worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see GlaxoSmithKline Pharmaceuticals's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 77% and 59% respectively. Overall, it's hard to get excited about GlaxoSmithKline Pharmaceuticals from a dividend perspective.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 1 warning sign with GlaxoSmithKline Pharmaceuticals and understanding them should be part of your investment process.

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.