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Here's What We Like About Great Eastern Shipping's (NSE:GESHIP) Upcoming Dividend
The Great Eastern Shipping Company Limited (NSE:GESHIP) stock is about to trade ex-dividend in three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Great Eastern Shipping's shares before the 13th of November in order to receive the dividend, which the company will pay on the 6th of December.
The company's next dividend payment will be ₹14.40 per share, on the back of last year when the company paid a total of ₹35.10 to shareholders. Last year's total dividend payments show that Great Eastern Shipping has a trailing yield of 2.4% on the current share price of ₹1469.00. If you buy this business for its dividend, you should have an idea of whether Great Eastern Shipping's dividend is reliable and sustainable. As a result, readers should always check whether Great Eastern Shipping has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Great Eastern Shipping paid out just 6.7% 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. The company paid out 107% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
Great Eastern Shipping 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 Great Eastern Shipping'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. Were this to happen repeatedly, this would be a risk to Great Eastern Shipping's ability to maintain its dividend.
Check out our latest analysis for Great Eastern Shipping
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Great Eastern Shipping's earnings have been skyrocketing, up 38% 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Great Eastern Shipping has lifted its dividend by approximately 10% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Has Great Eastern Shipping got what it takes to maintain its dividend payments? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its 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.
While it's tempting to invest in Great Eastern Shipping for the dividends alone, you should always be mindful of the risks involved. We've identified 3 warning signs with Great Eastern Shipping (at least 2 which are potentially serious), and understanding these should be part of your investment process.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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