Should Income Investors Look At Gujarat Pipavav Port Limited (NSE:GPPL) Before Its Ex-Dividend?
Gujarat Pipavav Port Limited (NSE:GPPL) is about to trade ex-dividend in the next 3 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Gujarat Pipavav Port's shares before the 12th of November to receive the dividend, which will be paid on the 25th of November.
The company's next dividend payment will be ₹3.00 per share. Last year, in total, the company distributed ₹10.40 to shareholders. Based on the last year's worth of payments, Gujarat Pipavav Port has a trailing yield of 6.2% on the current stock price of ₹166.49. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Gujarat Pipavav Port's payout ratio is modest, at just 44% of profit. A useful secondary check can be to evaluate whether Gujarat Pipavav Port generated enough free cash flow to afford its dividend. Over the past year it paid out 118% of its free cash flow as dividends, which is uncomfortably 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.
Gujarat Pipavav Port does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While Gujarat Pipavav Port's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Gujarat Pipavav Port to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for Gujarat Pipavav Port
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Gujarat Pipavav Port's earnings per share have risen 20% per annum over the last 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, Gujarat Pipavav Port has lifted its dividend by approximately 19% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
From a dividend perspective, should investors buy or avoid Gujarat Pipavav Port? We like that Gujarat Pipavav Port has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. Overall, it's hard to get excited about Gujarat Pipavav Port from a dividend perspective.
In light of that, while Gujarat Pipavav Port has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Gujarat Pipavav Port is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...
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