Income Investors Should Know That Gujarat Narmada Valley Fertilizers & Chemicals Limited (NSE:GNFC) Goes Ex-Dividend Soon
Readers hoping to buy Gujarat Narmada Valley Fertilizers & Chemicals Limited (NSE:GNFC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Gujarat Narmada Valley Fertilizers & Chemicals' shares before the 9th of September in order to receive the dividend, which the company will pay on the 16th of October.
The company's next dividend payment will be ₹21.00 per share. Last year, in total, the company distributed ₹21.00 to shareholders. Based on the last year's worth of payments, Gujarat Narmada Valley Fertilizers & Chemicals has a trailing yield of 3.5% on the current stock price of ₹596.70. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Gujarat Narmada Valley Fertilizers & Chemicals's payout ratio is modest, at just 38% of profit. A useful secondary check can be to evaluate whether Gujarat Narmada Valley Fertilizers & Chemicals generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 241% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Gujarat Narmada Valley Fertilizers & Chemicals intends to continue funding this dividend, or if it could be forced to cut the payment.
Gujarat Narmada Valley Fertilizers & Chemicals does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
While Gujarat Narmada Valley Fertilizers & Chemicals'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 Gujarat Narmada Valley Fertilizers & Chemicals to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
See our latest analysis for Gujarat Narmada Valley Fertilizers & Chemicals
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. With that in mind, we're encouraged by the steady growth at Gujarat Narmada Valley Fertilizers & Chemicals, with earnings per share up 9.5% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Gujarat Narmada Valley Fertilizers & Chemicals has lifted its dividend by approximately 27% 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
Is Gujarat Narmada Valley Fertilizers & Chemicals an attractive dividend stock, or better left on the shelf? Gujarat Narmada Valley Fertilizers & Chemicals has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
However if you're still interested in Gujarat Narmada Valley Fertilizers & Chemicals as a potential investment, you should definitely consider some of the risks involved with Gujarat Narmada Valley Fertilizers & Chemicals. We've identified 2 warning signs with Gujarat Narmada Valley Fertilizers & Chemicals (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.
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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.