Just Three Days Till Gujarat Gas Limited (NSE:GUJGASLTD) Will Be Trading Ex-Dividend

Gujarat Gas Limited (NSE:GUJGASLTD) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, Gujarat Gas investors that purchase the stock on or after the 4th of September will not receive the dividend, which will be paid on the 24th of October.

The company's upcoming dividend is ₹5.82 a share, following on from the last 12 months, when the company distributed a total of ₹5.82 per share to shareholders. Based on the last year's worth of payments, Gujarat Gas has a trailing yield of 1.4% on the current stock price of ₹419.45. If you buy this business for its dividend, you should have an idea of whether Gujarat Gas's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Gujarat Gas paid out a comfortable 35% of its profit last year. 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 37% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Gujarat Gas'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.

View our latest analysis for Gujarat Gas

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Gujarat Gas's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last nine years, Gujarat Gas has lifted its dividend by approximately 31% a year on average.

Final Takeaway

Is Gujarat Gas an attractive dividend stock, or better left on the shelf? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Gujarat Gas's dividend merits.

Curious what other investors think of Gujarat Gas? 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.