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

SMS Pharmaceuticals Limited (NSE:SMSPHARMA) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of October to ₹0.40. Despite this raise, the dividend yield of 0.1% is only a modest boost to shareholder returns.

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 67% 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' Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. SMS Pharmaceuticals is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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.

Looking forward, earnings per share could rise by 7.0% 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 5.9% by next year, which we think can be pretty sustainable going forward.

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 2014, the dividend has gone from ₹0.20 total annually to ₹0.40. This means that it has been growing its distributions at 7.2% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

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. 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

Overall, we always like to see the dividend being raised, but we don't think SMS Pharmaceuticals will make a great income stock. While SMS Pharmaceuticals is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for SMS Pharmaceuticals you should be aware of, and 2 of them are a bit concerning. 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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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.