GPT Healthcare (NSE:GPTHEALTH) Could Be A Buy For Its Upcoming Dividend
GPT Healthcare Limited (NSE:GPTHEALTH) 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase GPT Healthcare's shares before the 12th of November in order to be eligible for the dividend, which will be paid on the 4th of December.
The company's next dividend payment will be ₹1.00 per share, on the back of last year when the company paid a total of ₹2.50 to shareholders. Looking at the last 12 months of distributions, GPT Healthcare has a trailing yield of approximately 1.7% on its current stock price of ₹143.93. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! 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. GPT Healthcare paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
See our latest analysis for GPT Healthcare
Click here to see how much of its profit GPT Healthcare 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see GPT Healthcare's earnings per share have risen 19% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last three years, GPT Healthcare has lifted its dividend by approximately 7.7% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy GPT Healthcare for the upcoming dividend? GPT Healthcare has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past three years, but the conservative payout ratio makes the current dividend look sustainable. GPT Healthcare looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while GPT Healthcare has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for GPT Healthcare you should be aware of.
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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