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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Gravita India Limited (NSE:GRAVITA) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 11th of September will not receive this dividend, which will be paid on the 20th of October.
Gravita India's next dividend payment will be ₹0.30 per share. Last year, in total, the company distributed ₹0.30 to shareholders. Based on the last year's worth of payments, Gravita India stock has a trailing yield of around 0.8% on the current share price of ₹37.2. If you buy this business for its dividend, you should have an idea of whether Gravita India's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Gravita India
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. Gravita India paid out a comfortable 30% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Gravita India's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Gravita India paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Gravita India's 21% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Gravita India has seen its dividend decline 12% per annum on average over the past 8 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.