Bajaj Auto's (NSE:BAJAJ-AUTO) Dividend Will Be ₹140.00

The board of Bajaj Auto Limited (NSE:BAJAJ-AUTO) has announced that it will pay a dividend of ₹140.00 per share on the 24th of August. Based on this payment, the dividend yield on the company's stock will be 3.0%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Bajaj Auto

Bajaj Auto's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Bajaj Auto is earning enough to cover the payment, but then it makes up 95% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 37.0%. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.

Bajaj Auto Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was ₹45.00, compared to the most recent full-year payment of ₹140.00. This means that it has been growing its distributions at 12% per annum 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.

The Dividend Has Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Bajaj Auto has grown earnings per share at 8.0% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Bajaj Auto's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a 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.