Zydus Lifesciences Limited (NSE:ZYDUSLIFE) Passed Our Checks, And It's About To Pay A ₹3.00 Dividend

Readers hoping to buy Zydus Lifesciences Limited (NSE:ZYDUSLIFE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Zydus Lifesciences investors that purchase the stock on or after the 26th of July will not receive the dividend, which will be paid on the 8th of September.

The company's next dividend payment will be ₹3.00 per share, on the back of last year when the company paid a total of ₹3.00 to shareholders. Based on the last year's worth of payments, Zydus Lifesciences stock has a trailing yield of around 0.3% on the current share price of ₹1154.55. If you buy this business for its dividend, you should have an idea of whether Zydus Lifesciences's dividend is reliable and sustainable. As a result, readers should always check whether Zydus Lifesciences has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Zydus Lifesciences

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Zydus Lifesciences has a low and conservative payout ratio of just 7.9% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Zydus Lifesciences'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. For this reason, we're glad to see Zydus Lifesciences's earnings per share have risen 16% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Zydus Lifesciences has increased its dividend at approximately 5.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Zydus Lifesciences is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid Zydus Lifesciences? It's great that Zydus Lifesciences is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.

Curious what other investors think of Zydus Lifesciences? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

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.

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