SMS Pharmaceuticals' (NSE:SMSPHARMA) Dividend Will Be ₹0.30

The board of SMS Pharmaceuticals Limited (NSE:SMSPHARMA) has announced that it will pay a dividend of ₹0.30 per share on the 29th of October. This means the annual payment will be 0.2% of the current stock price, which is lower than the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that SMS Pharmaceuticals' stock price has increased by 38% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for SMS Pharmaceuticals

SMS Pharmaceuticals' Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, the dividend made up 297% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to fall by 13.9% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 20%, which we consider to be quite comfortable, even though the current levels are slightly more elevated.

SMS Pharmaceuticals Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2014, the annual payment back then was ₹0.20, compared to the most recent full-year payment of ₹0.30. This implies that the company grew its distributions at a yearly rate of about 4.6% over that duration. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. SMS Pharmaceuticals' earnings per share has shrunk at 14% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

SMS Pharmaceuticals' Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help SMS Pharmaceuticals make more consistent payments in the future. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, SMS Pharmaceuticals has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about. Is SMS Pharmaceuticals not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.