SMS Pharmaceuticals (NSE:SMSPHARMA) Has Announced That It Will Be Increasing Its Dividend To ₹0.40

The board of SMS Pharmaceuticals Limited (NSE:SMSPHARMA) has announced that it will be paying its dividend of ₹0.40 on the 30th of October, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 0.1%, which is below 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 46% 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' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. SMS Pharmaceuticals is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 7.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 5.9%, which is in the range that makes us comfortable with the sustainability of the dividend.

SMS Pharmaceuticals Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from ₹0.20 total annually to ₹0.40. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

SMS Pharmaceuticals Could Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that SMS Pharmaceuticals has grown earnings per share at 7.0% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think SMS Pharmaceuticals' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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