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Should You Buy Shilpa Medicare Limited (NSE:SHILPAMED) For Its Upcoming Dividend In 3 Days?

Simply Wall St

Readers hoping to buy Shilpa Medicare Limited (NSE:SHILPAMED) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 12th of September in order to receive the dividend, which the company will pay on the 20th of October.

Shilpa Medicare's next dividend payment will be ₹1.00 per share, and in the last 12 months, the company paid a total of ₹1.00 per share. Based on the last year's worth of payments, Shilpa Medicare has a trailing yield of 0.4% on the current stock price of ₹259.8. If you buy this business for its dividend, you should have an idea of whether Shilpa Medicare's dividend is reliable and sustainable. So we need to investigate whether Shilpa Medicare can afford its dividend, and if the dividend could grow.

View our latest analysis for Shilpa Medicare

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shilpa Medicare has a low and conservative payout ratio of just 8.6% of its income after tax. Shilpa Medicare paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

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

NSEI:SHILPAMED Historical Dividend Yield, September 8th 2019

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Shilpa Medicare, with earnings per share up 2.4% on average over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Shilpa Medicare has lifted its dividend by approximately 20% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Shilpa Medicare an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Shilpa Medicare is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Shilpa Medicare is halfway there. Overall we think this is an attractive combination and worthy of further research.

Curious what other investors think of Shilpa Medicare? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.