Bharat Forge (NSE:BHARATFORG) Has Affirmed Its Dividend Of ₹2.50

The board of Bharat Forge Limited (NSE:BHARATFORG) has announced that it will pay a dividend on the 12th of March, with investors receiving ₹2.50 per share. This makes the dividend yield 0.8%, which will augment investor returns quite nicely.

Check out our latest analysis for Bharat Forge

Bharat Forge's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Bharat Forge's dividend was only 34% of earnings, however it was paying out 875% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 162.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ₹2.25, compared to the most recent full-year payment of ₹9.00. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 3.3% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Bharat Forge's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bharat Forge's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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. For example, we've picked out 2 warning signs for Bharat Forge that investors should know about before committing capital to this stock. Is Bharat Forge not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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