Here's What We Like About Torrent Pharmaceuticals' (NSE:TORNTPHARM) Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Torrent Pharmaceuticals Limited (NSE:TORNTPHARM) is about to go ex-dividend in just day or so. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Torrent Pharmaceuticals' shares on or after the 31st of January will not receive the dividend, which will be paid on the 23rd of February.

The company's next dividend payment will be ₹26.00 per share, and in the last 12 months, the company paid a total of ₹28.00 per share. Based on the last year's worth of payments, Torrent Pharmaceuticals has a trailing yield of 0.8% on the current stock price of ₹3314.80. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Torrent Pharmaceuticals has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Torrent Pharmaceuticals

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Torrent Pharmaceuticals paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 35% of its free cash flow in the past year.

It's positive to see that Torrent Pharmaceuticals's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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. That's why it's comforting to see Torrent Pharmaceuticals's earnings have been skyrocketing, up 34% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Torrent Pharmaceuticals could have strong prospects for future increases to the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Torrent Pharmaceuticals has delivered an average of 21% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Torrent Pharmaceuticals for the upcoming dividend? We like Torrent Pharmaceuticals's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Torrent Pharmaceuticals for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Torrent Pharmaceuticals that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.