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 Godfrey Phillips India Limited (NSE:GODFRYPHLP) is about to go ex-dividend in just 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 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. Accordingly, Godfrey Phillips India investors that purchase the stock on or after the 12th of November will not receive the dividend, which will be paid on the 5th of December.
The company's next dividend payment will be ₹10.00 per share, and in the last 12 months, the company paid a total of ₹50.00 per share. Based on the last year's worth of payments, Godfrey Phillips India stock has a trailing yield of around 2.8% on the current share price of ₹1790.00. If you buy this business for its dividend, you should have an idea of whether Godfrey Phillips India's dividend is reliable and sustainable. So we need to investigate whether Godfrey Phillips India can afford its dividend, and if the dividend could grow.
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. That's why it's good to see Godfrey Phillips India paying out a modest 41% 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. Godfrey Phillips India paid out more free cash flow than it generated - 114%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Godfrey Phillips India paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Godfrey Phillips India to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Check out our latest analysis for Godfrey Phillips India
Click here to see how much of its profit Godfrey Phillips India paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Godfrey Phillips India's earnings have been skyrocketing, up 27% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Godfrey Phillips India has delivered an average of 34% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Has Godfrey Phillips India got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
While it's tempting to invest in Godfrey Phillips India for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Godfrey Phillips India and you should be aware of them before buying any 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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