Why You Might Be Interested In Granules India Limited (NSE:GRANULES) For Its Upcoming Dividend

By
Simply Wall St
Published
July 23, 2021
NSEI:GRANULES
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Granules India Limited (NSE:GRANULES) stock is about to trade ex-dividend in 3 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Granules India's shares on or after the 28th of July, you won't be eligible to receive the dividend, when it is paid on the 3rd of September.

The company's next dividend payment will be ₹0.75 per share. Last year, in total, the company distributed ₹1.50 to shareholders. Calculating the last year's worth of payments shows that Granules India has a trailing yield of 0.4% on the current share price of ₹379.45. If you buy this business for its dividend, you should have an idea of whether Granules India's dividend is reliable and sustainable. So we need to investigate whether Granules India can afford its dividend, and if the dividend could grow.

View our latest analysis for Granules 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. Granules India is paying out just 6.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. The good news is it paid out just 15% of its free cash flow in the last year.

It's positive to see that Granules India'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 the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NSEI:GRANULES Historic Dividend July 24th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Granules India's earnings have been skyrocketing, up 30% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Granules India looks like a promising growth company.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Granules India has delivered an average of 28% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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 Granules India for the upcoming dividend? Granules India has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Granules India looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Granules India for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Granules India you should be aware of.

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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