Don’t rush to buy Gujarat Pipavav Port Limited (NSE: GPPL) just because it goes ex-dividend

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Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Gujarat Pipavav Port Limited (NSE: GPPL) is set to go ex-dividend in just three days. The ex-dividend date occurs one day before the record date which is the day shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. So, you can buy shares of Gujarat Pipavav Port before July 26 in order to receive the dividend, which the company will pay on August 5.

The company’s next dividend payment will be ₹2.40 per share, and in the past 12 months the company has paid a total of ₹4.00 per share. Over the past 12 months of distributions, Gujarat Pipavav Port has yielded around 4.9% on its current price of ₹81.8. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. We therefore need to check whether dividend payments are covered and whether profits are increasing.

See our latest review for Gujarat Pipavav Port

If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. Last year, Port of Gujarat Pipavav paid out 98% of its revenue in the form of dividends, which is above a level we are comfortable with, especially if the company needs to reinvest in its business. Still, cash flow is usually more important than earnings in assessing the sustainability of dividends, so we always need to check whether the company has generated enough cash to pay its dividend. Over the past year, it has paid out 59% of its free cash flow as dividends, within the usual range for most companies.

Good to see that even though Gujarat Pipavav Port dividends were not well covered by earnings, they are at least affordable from a cash flow perspective. Yet if the company continues to pay out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NSEI: GPPL Historic dividend July 22, 2022

Have earnings and dividends increased?

When earnings decline, dividend companies become much more difficult to analyze and to own safely. Investors love dividends, so if earnings fall and the dividend is cut, expect a stock to sell heavily at the same time. Gujarat Pipavav Port’s earnings per share have fallen by around 6.9% annually over the past five years. Such a sharp drop casts doubt on the future sustainability of the dividend.

Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Since our data began six years ago, Gujarat Pipavav Port has increased its dividend by around 13% per year on average. It’s intriguing, but the combination of growing dividends despite falling profits can usually only be achieved by paying out a higher percentage of profits. The Port of Gujarat Pipavav already pays out a high percentage of its revenue, so without profit growth, we doubt that dividend will increase much in the future.

Last takeaway

Is Gujarat Pipavav Port Worth Buying For Its Dividend? Earnings per share are down, which is not encouraging. Additionally, the Port of Gujarat Pipavav pays out a fairly high percentage of its profits and more than half of its cash flow, so it is difficult to assess whether the company is reinvesting enough in its business to improve its situation. Overall, it doesn’t seem like the most suitable dividend-paying stock for a long-term investor.

That being said, if you still consider Gujarat Pipavav Port as an investment, you will find it useful to know what risks this stock faces. For example, we found 1 warning sign for Gujarat Pipavav Port which we recommend you consider before investing in the company.

As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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