SMS Pharmaceuticals (NSE:SMSPHARMA) Is Due To Pay 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. Including this payment, the dividend yield on the stock will be 0.3%, which is a modest boost for shareholders' returns.

Check out our latest analysis for SMS Pharmaceuticals

SMS Pharmaceuticals' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. However, SMS Pharmaceuticals' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 1.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 10%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. 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. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. SMS Pharmaceuticals hasn't seen much change in its earnings per share over the last five years.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for SMS Pharmaceuticals (of which 1 is concerning!) 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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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.