Godfrey Phillips India Limited (NSE:GODFRYPHLP) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 13th of September in order to receive the dividend, which the company will pay on the 23rd of October.
Godfrey Phillips India's upcoming dividend is ₹10.00 a share, following on from the last 12 months, when the company distributed a total of ₹10.00 per share to shareholders. Based on the last year's worth of payments, Godfrey Phillips India stock has a trailing yield of around 1.0% on the current share price of ₹981.4. If you buy this business for its dividend, you should have an idea of whether Godfrey Phillips India's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Godfrey Phillips India paid out just 16% 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. Luckily it paid out just 18% of its free cash flow last year.
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.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Godfrey Phillips India's earnings per share have risen 13% per annum over the last 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. In the last 10 years, Godfrey Phillips India has lifted its dividend by approximately 7.2% 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
Has Godfrey Phillips India got what it takes to maintain its dividend payments? We love that Godfrey Phillips India 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. There's a lot to like about Godfrey Phillips India, and we would prioritise taking a closer look at it.
Want to learn more about Godfrey Phillips India's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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