Bajaj Auto (NSE:BAJAJ-AUTO) Has Announced A Dividend Of ₹140

Bajaj Auto Limited (NSE:BAJAJ-AUTO) will pay a dividend of ₹140 on the 30th of July. The dividend yield will be 3.6% based on this payment which is still above the industry average.

View our latest analysis for Bajaj Auto

Bajaj Auto's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Bajaj Auto's dividend was only 66% of earnings, however it was paying out 111% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to fall by 11.7%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 83%, which is definitely on the higher side.

Bajaj Auto Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from ₹45.00 to ₹140. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

We Could See Bajaj Auto's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. Bajaj Auto has seen EPS rising for the last five years, at 8.6% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bajaj Auto's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Bajaj Auto that investors need to be conscious of moving forward. Is Bajaj Auto not quite the opportunity you were looking for? Why not check out 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.