SMS Pharmaceuticals (NSE:SMSPHARMA) Has Announced A Dividend Of ₹0.30

The board of SMS Pharmaceuticals Limited (NSE:SMSPHARMA) has announced that it will pay a dividend on the 30th of October, with investors receiving ₹0.30 per share. The dividend yield is 0.4% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for SMS Pharmaceuticals

SMS Pharmaceuticals' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, SMS Pharmaceuticals' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 16.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 3.5%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹0.15 in 2012, and the most recent fiscal year payment was ₹0.30. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that SMS Pharmaceuticals has grown earnings per share at 17% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for SMS Pharmaceuticals' prospects of growing its dividend payments in the future.

SMS Pharmaceuticals Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think SMS Pharmaceuticals might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, SMS Pharmaceuticals has 2 warning signs (and 1 which is potentially serious) 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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