GAIL (India) Limited (NSE: GAIL) soon becomes ex-dividend
GAIL (India) Limited The stock (NSE: GAIL) is about to trade after dividend in three days. The ex-dividend date is one business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. It is important to know the ex-dividend date because any transaction in the share must have been settled by the registration date at the latest. This means that you will have to buy GAIL (India) shares before December 30 to receive the dividend, which will be paid on January 22.
The company’s next dividend payment will be 4.00 per share. Last year, in total, the company distributed 5.00 yen to shareholders. Based on the value of last year’s payouts, the GAIL (India) share has a rolling yield of approximately 5.0% on the current share price of 130.85. If you are buying this company for its dividend, you should know if the dividend from GAIL (India) is reliable and sustainable. So we need to determine if GAIL (India) can afford its dividend and if the dividend could increase.
See our latest analysis for GAIL (India)
Dividends are usually paid out of the company’s profits, so if a company pays more than it earns, its dividend is usually at risk of being reduced. GAIL (India) paid a comfortable 31% of its profit last year. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. In the past year, it has paid out 191% of its free cash flow as dividends, which is uncomfortably high. We’re curious as to why the company paid out more cash than it generated last year, as that can be one of the first signs that a dividend may be unsustainable.
While the dividends from GAIL (India) were covered by the reported profits of the company, the cash flow is a bit more important, so it’s not great to see that the company did not generate enough cash to pay its dividends. Money is king, as they say, and if GAIL (India) were to repeatedly pay dividends that are not well covered by cash flow, we would take this as a warning sign.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. If business goes into recession and the dividend is reduced, the business could experience a sharp drop in value. This is why it is heartwarming to see GAIL (India) revenues soar, increasing by 39% per year over the past five years. Profits have grown rapidly, but we’re concerned that dividend payments have consumed most of the company’s cash flow over the past year.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. GAIL (India) has generated dividend growth of 12% per year on average over the past 10 years. It is exciting to see that earnings and dividends per share have increased rapidly over the past few years.
The bottom line
Does GAIL (India) have what it takes to maintain its dividend payments? We are happy to see that the company has improved its earnings per share while contributing a small percentage of its revenue. However, it’s not great to see him paying what we consider to be an uncomfortably high percentage of his cash flow. All things considered, we are not particularly excited about GAIL (India) from a dividend perspective.
In light of this, although GAIL (India) has an attractive dividend, it is worth knowing the risks involved in this stock. To this end, you should inquire about the 3 warning signs we spotted with GAIL (India) (including 1 which cannot be ignored).
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.