Sun Pharmaceutical Industries Limited (NSE:SUNPHARMA) Passed Our Checks, And It's About To Pay A ₹2.00 Dividend

Readers hoping to buy Sun Pharmaceutical Industries Limited (NSE:SUNPHARMA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Sun Pharmaceutical Industries' shares on or after the 23rd of August will not receive the dividend, which will be paid on the 17th of September.

The company's next dividend payment will be ₹2.00 per share, and in the last 12 months, the company paid a total of ₹7.50 per share. Based on the last year's worth of payments, Sun Pharmaceutical Industries stock has a trailing yield of around 1.0% on the current share price of ₹782.9. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Sun Pharmaceutical Industries has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Sun Pharmaceutical Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Sun Pharmaceutical Industries paying out a modest 30% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 31% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Sun Pharmaceutical Industries, with earnings per share up 5.8% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Sun Pharmaceutical Industries has increased its dividend at approximately 16% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Sun Pharmaceutical Industries an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Sun Pharmaceutical Industries is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Sun Pharmaceutical Industries is being conservative with its dividend payouts and could still perform reasonably over the long run. Sun Pharmaceutical Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Sun Pharmaceutical Industries is facing. To help with this, we've discovered 1 warning sign for Sun Pharmaceutical Industries that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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