Gujarat Ambuja Exports Limited (NSE:GAEL)'s Could Be A Buy For Its Upcoming Dividend
It looks like Gujarat Ambuja Exports Limited (NSE:GAEL) is about to go ex-dividend in the next 2 days. If you purchase the stock on or after the 25th of July, you won't be eligible to receive this dividend, when it is paid on the 2nd of September.
Gujarat Ambuja Exports's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹1.00 to shareholders. Calculating the last year's worth of payments shows that Gujarat Ambuja Exports has a trailing yield of 0.7% on the current share price of ₹138.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Gujarat Ambuja Exports has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Gujarat Ambuja Exports
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Gujarat Ambuja Exports is paying out just 5.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It paid out 2.2% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Gujarat Ambuja Exports's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Gujarat Ambuja Exports paid out over the last 12 months.
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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Gujarat Ambuja Exports's earnings per share have been growing at 16% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
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, Gujarat Ambuja Exports has lifted its dividend by approximately 9.6% 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.
To Sum It Up
From a dividend perspective, should investors buy or avoid Gujarat Ambuja Exports? We love that Gujarat Ambuja Exports is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.
Curious about whether Gujarat Ambuja Exports has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.
