SMS Pharmaceuticals (NSE:SMSPHARMA) Will Pay A Dividend Of ₹0.30

SMS Pharmaceuticals Limited (NSE:SMSPHARMA) has announced that it will pay a dividend of ₹0.30 per share on the 30th of October. This payment means the dividend yield will be 0.4%, which is below the average for the industry.

Check out our latest analysis for SMS Pharmaceuticals

SMS Pharmaceuticals' Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, SMS Pharmaceuticals' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 1.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 10%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was ₹0.15, compared to the most recent full-year payment of ₹0.30. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, SMS Pharmaceuticals' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

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. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. To that end, SMS Pharmaceuticals has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about. 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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