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

SMS Pharmaceuticals Limited (NSE:SMSPHARMA) will pay a dividend of ₹0.30 on the 29th of October. This payment means the dividend yield will be 0.2%, which is below the average for the industry.

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 60% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for SMS Pharmaceuticals

SMS Pharmaceuticals' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Even in the absence of profits, SMS Pharmaceuticals is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

EPS is set to fall by 13.9% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 20%, which is definitely feasible to continue.

SMS Pharmaceuticals Is Still Building Its Track Record

SMS Pharmaceuticals' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 9 years was ₹0.20 in 2014, and the most recent fiscal year payment was ₹0.30. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. 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

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Over the past five years, it looks as though SMS Pharmaceuticals' EPS has declined at around 14% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

SMS Pharmaceuticals' Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 can'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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