GAIL (India) Limited (NSE:GAIL) Stock Goes Ex-Dividend In Just Three Days
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see GAIL (India) Limited (NSE:GAIL) is about to trade ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a 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. In other words, investors can purchase GAIL (India)'s shares before the 2nd of September in order to be eligible for the dividend, which will be paid on the 26th of September.
The company's next dividend payment will be ₹0.50 per share. Last year, in total, the company distributed ₹5.50 to shareholders. Last year's total dividend payments show that GAIL (India) has a trailing yield of 3.2% on the current share price of ₹171.10. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. GAIL (India) paid out a comfortable 48% of its profit last year. A useful secondary check can be to evaluate whether GAIL (India) generated enough free cash flow to afford its dividend. GAIL (India) paid out more free cash flow than it generated - 162%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While GAIL (India)'s dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were GAIL (India) to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for GAIL (India)
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, GAIL (India)'s earnings per share have been growing at 11% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
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, GAIL (India) has lifted its dividend by approximately 18% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Has GAIL (India) got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. In summary, it's hard to get excited about GAIL (India) from a dividend perspective.
In light of that, while GAIL (India) has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for GAIL (India) that you should be aware of before investing in their shares.
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.