Why You Might Be Interested In Balkrishna Industries Limited (NSE:BALKRISIND) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Balkrishna Industries Limited (NSE:BALKRISIND) is about to trade ex-dividend in the next two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Balkrishna Industries investors that purchase the stock on or after the 31st of October will not receive the dividend, which will be paid on the 24th of November.

The company's next dividend payment will be ₹4.00 per share. Last year, in total, the company distributed ₹16.00 to shareholders. Based on the last year's worth of payments, Balkrishna Industries has a trailing yield of 0.6% on the current stock price of ₹2907.55. 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.

View our latest analysis for Balkrishna Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Balkrishna Industries is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Balkrishna Industries'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.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Balkrishna Industries's earnings per share have been growing at 16% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

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, Balkrishna Industries 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.

To Sum It Up

Has Balkrishna Industries got what it takes to maintain its dividend payments? Balkrishna Industries has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 1 warning sign for Balkrishna Industries and you should be aware of it before buying any 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.