Gillette India Limited (NSE:GILLETTE) Is About To Go Ex-Dividend, And It Pays A 2.4% Yield
It looks like Gillette India Limited (NSE:GILLETTE) is about to go ex-dividend in the next 3 days. The ex-dividend date is commonly two business days 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. Meaning, you will need to purchase Gillette India's shares before the 24th of August to receive the dividend, which will be paid on the 28th of September.
The company's next dividend payment will be ₹60.00 per share, on the back of last year when the company paid a total of ₹180 to shareholders. Looking at the last 12 months of distributions, Gillette India has a trailing yield of approximately 2.4% on its current stock price of ₹7505.00. If you buy this business for its dividend, you should have an idea of whether Gillette India's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 90% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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. It paid out 98% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Gillette India paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Gillette India's ability to maintain its dividend.
Check out our latest analysis for Gillette India
Click here to see how much of its profit Gillette India paid out over the last 12 months.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Gillette India's earnings per share have been growing at 15% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Gillette India has lifted its dividend by approximately 28% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Is Gillette India worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Gillette India paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall, it's hard to get excited about Gillette India from a dividend perspective.
However if you're still interested in Gillette India as a potential investment, you should definitely consider some of the risks involved with Gillette India. In terms of investment risks, we've identified 1 warning sign with Gillette India and understanding them should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.