Read This Before Considering Procter & Gamble Health Limited (NSE:PGHL) For Its Upcoming ₹45.00 Dividend

It looks like Procter & Gamble Health Limited (NSE:PGHL) is about to go ex-dividend in the next 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. Accordingly, Procter & Gamble Health investors that purchase the stock on or after the 27th of August will not receive the dividend, which will be paid on the 27th of September.

The company’s next dividend payment will be ₹45.00 per share, on the back of last year when the company paid a total of ₹155 to shareholders. Looking at the last 12 months of distributions, Procter & Gamble Health has a trailing yield of approximately 2.1% on its current stock price of ₹5828.50. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Procter & Gamble Health paid out more than half (63%) 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. The company paid out 106% 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.

While Procter & Gamble Health’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 Procter & Gamble Health’s ability to maintain its dividend.

Check out our latest analysis for Procter & Gamble Health

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. Fortunately for readers, Procter & Gamble Health’s earnings per share have been growing at 14% a year for the past five years. Earnings have been growing at a decent rate, 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 past 10 years, Procter & Gamble Health has increased its dividend at approximately 32% 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 Procter & Gamble Health got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company’s payout ratio looks normal. However, we note Procter & Gamble Health paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, while it has some positive characteristics, we’re not inclined to race out and buy Procter & Gamble Health today.

With that being said, if dividends aren’t your biggest concern with Procter & Gamble Health, you should know about the other risks facing this business. To help with this, we’ve discovered 1 warning sign for Procter & Gamble Health that you should be aware of before investing in their shares.

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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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.