Is It Worth Considering Ganesh Housing Limited (NSE:GANESHHOU) For Its Upcoming Dividend?

It looks like Ganesh Housing Limited (NSE:GANESHHOU) is about to go ex-dividend in the next three 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Ganesh Housing's shares on or after the 31st of August will not receive the dividend, which will be paid on the 10th of October.

The company's upcoming dividend is ₹1.50 a share, following on from the last 12 months, when the company distributed a total of ₹1.50 per share to shareholders. Looking at the last 12 months of distributions, Ganesh Housing has a trailing yield of approximately 0.2% on its current stock price of ₹813.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Ganesh Housing has been able to grow its dividends, or if the dividend might be cut.

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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. Ganesh Housing paid out just 4.0% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 141% of its free cash flow as dividends, which is uncomfortably 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.

Ganesh Housing paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Ganesh Housing's ability to maintain its dividend.

Check out our latest analysis for Ganesh Housing

Click here to see how much of its profit Ganesh Housing paid out over the last 12 months.

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. That's why it's comforting to see Ganesh Housing's earnings have been skyrocketing, up 37% per annum 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ganesh Housing's dividend payments per share have declined at 2.8% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

From a dividend perspective, should investors buy or avoid Ganesh Housing? We like that Ganesh Housing has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Ganesh Housing's dividend merits.

While it's tempting to invest in Ganesh Housing for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Ganesh Housing that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.