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Readers hoping to buy Gillette India Limited (NSE:GILLETTE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 18th of November will not receive this dividend, which will be paid on the 20th of December.
Gillette India's next dividend payment will be ₹25.0 per share, on the back of last year when the company paid a total of ₹50.0 to shareholders. Last year's total dividend payments show that Gillette India has a trailing yield of 0.7% on the current share price of ₹7237.6. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Gillette India can afford its dividend, and if the dividend could grow.
View our latest analysis for Gillette India
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Gillette India paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out dividends equivalent to 233% 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 Gillette India intends to continue funding this dividend, or if it could be forced to the payment.
Gillette India paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Gillette India to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see how much of its profit Gillette India paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Gillette India has grown its earnings rapidly, up 41% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.