GlaxoSmithKline Pharmaceuticals Limited (NSE:GLAXO) Will Pay A ₹57.00 Dividend In Three Days
Readers hoping to buy GlaxoSmithKline Pharmaceuticals Limited (NSE:GLAXO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. 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. This means that investors who purchase GlaxoSmithKline Pharmaceuticals' shares on or after the 29th of May will not receive the dividend, which will be paid on the 30th of July.
The company's upcoming dividend is ₹57.00 a share, following on from the last 12 months, when the company distributed a total of ₹45.00 per share to shareholders. Looking at the last 12 months of distributions, GlaxoSmithKline Pharmaceuticals has a trailing yield of approximately 1.9% on its current stock price of ₹2306.90. If you buy this business for its dividend, you should have an idea of whether GlaxoSmithKline Pharmaceuticals's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 75% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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 more than three-quarters (84%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that GlaxoSmithKline Pharmaceuticals'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.
View our latest analysis for GlaxoSmithKline Pharmaceuticals
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see GlaxoSmithKline Pharmaceuticals has grown its earnings rapidly, up 29% a year for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, GlaxoSmithKline Pharmaceuticals has increased its dividend at approximately 6.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Should investors buy GlaxoSmithKline Pharmaceuticals for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that GlaxoSmithKline Pharmaceuticals is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it's hard to get excited about GlaxoSmithKline Pharmaceuticals from a dividend perspective.
On that note, you'll want to research what risks GlaxoSmithKline Pharmaceuticals is facing. Our analysis shows 1 warning sign for GlaxoSmithKline Pharmaceuticals and you should be aware of it before buying any shares.
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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.