Should You Buy Zydus Wellness Limited (NSE:ZYDUSWELL) For Its Upcoming Dividend?
Zydus Wellness Limited (NSE:ZYDUSWELL) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Zydus Wellness' shares on or after the 17th of July will not receive the dividend, which will be paid on the 3rd of September.
The company's next dividend payment will be ₹1.20 per share. Last year, in total, the company distributed ₹1.20 to shareholders. Based on the last year's worth of payments, Zydus Wellness has a trailing yield of 0.2% on the current stock price of ₹592.45. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Zydus Wellness has a low and conservative payout ratio of just 19% of its income after tax. A useful secondary check can be to evaluate whether Zydus Wellness generated enough free cash flow to afford its dividend. It distributed 31% 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 Zydus Wellness
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. This is why it's a relief to see Zydus Wellness earnings per share are up 9.7% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Zydus Wellness has seen its dividend decline 0.8% per annum on average over the past 10 years, which is not great to see.
To Sum It Up
Has Zydus Wellness got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Zydus Wellness is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Zydus Wellness is being conservative with its dividend payouts and could still perform reasonably over the long run. Zydus Wellness looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Zydus Wellness looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 2 warning signs with Zydus Wellness (at least 1 which is a bit concerning), and understanding these should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an 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 account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.