Bharat Forge (NSE:BHARATFORG) Is Due To Pay A Dividend Of ₹1.50

Bharat Forge Limited (NSE:BHARATFORG) will pay a dividend of ₹1.50 on the 13th of December. The dividend yield will be 0.8% based on this payment which is still above the industry average.

Check out the opportunities and risks within the IN Auto Components industry.

Bharat Forge's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Bharat Forge is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 139.1%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ₹2.00 in 2012 to the most recent total annual payment of ₹7.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Bharat Forge has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Bharat Forge May Find It Hard To Grow The Dividend

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 has been rising at 4.9% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, Bharat Forge could always pay out a higher proportion of earnings to increase shareholder returns.

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. While Bharat Forge is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Bharat Forge has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Bharat Forge not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.