SMS Pharmaceuticals' (NSE:SMSPHARMA) Dividend Will Be Increased To ₹0.40

SMS Pharmaceuticals Limited (NSE:SMSPHARMA) will increase its dividend from last year's comparable payment on the 30th of October to ₹0.40. This takes the annual payment to 0.1% of the current stock price, which unfortunately is below what the industry is paying.

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 53% 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. Based on the last payment, SMS Pharmaceuticals was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 7.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 5.9% by next year, which is in a pretty sustainable range.

SMS Pharmaceuticals Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was ₹0.20 in 2014, and the most recent fiscal year payment was ₹0.40. This means that it has been growing its distributions at 7.2% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that SMS Pharmaceuticals has grown earnings per share at 7.0% per year over the past five years. SMS Pharmaceuticals definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think SMS Pharmaceuticals will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think SMS Pharmaceuticals is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for SMS Pharmaceuticals that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of 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.