SMS Pharmaceuticals (NSE:SMSPHARMA) Has Announced A Dividend Of ₹0.40

SMS Pharmaceuticals Limited (NSE:SMSPHARMA) has announced that it will pay a dividend of ₹0.40 per share on the 29th of October. Including this payment, the dividend yield on the stock will be 0.2%, which is a modest boost for shareholders' returns.

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SMS Pharmaceuticals' Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, SMS Pharmaceuticals' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share could rise by 17.8% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 4.4% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for SMS Pharmaceuticals

SMS Pharmaceuticals Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was ₹0.20, compared to the most recent full-year payment of ₹0.40. This means that it has been growing its distributions at 7.2% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. SMS Pharmaceuticals has impressed us by growing EPS at 18% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On SMS Pharmaceuticals' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about SMS Pharmaceuticals' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for SMS Pharmaceuticals that investors need to be conscious of moving forward. 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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