Bharat Forge's (NSE:BHARATFORG) Dividend Will Be ₹6.00

Bharat Forge Limited's (NSE:BHARATFORG) investors are due to receive a payment of ₹6.00 per share on 6th of September. This means that the annual payment will be 0.7% of the current stock price, which is in line with the average for the industry.

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

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Bharat Forge's dividend was only 42% of earnings, however it was paying out 118% of free 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.

Over the next year, EPS is forecast to expand by 123.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 21% by next year, which is in a pretty sustainable range.

View our latest analysis for Bharat Forge

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from ₹2.25 total annually to ₹8.50. This means that it has been growing its distributions at 14% per annum over that time. 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Bharat Forge has grown earnings per share at 21% per year over the past five years. Bharat Forge is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Bharat Forge is earning enough to cover the payments, the cash flows are lacking. We don't think Bharat Forge is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Bharat Forge that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.