Balmer Lawrie (NSE:BALMLAWRIE) Is Increasing Its Dividend To ₹8.50

The board of Balmer Lawrie & Co. Ltd. (NSE:BALMLAWRIE) has announced that the dividend on 26th of October will be increased to ₹8.50, which will be 13% higher than last year's payment of ₹7.50 which covered the same period. This will take the dividend yield to an attractive 2.8%, providing a nice boost to shareholder returns.

Check out our latest analysis for Balmer Lawrie

Balmer Lawrie's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Balmer Lawrie was paying out 75% of earnings, but a comparatively small 58% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS could expand by 13.2% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 54% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ₹2.93 in 2014, and the most recent fiscal year payment was ₹7.50. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Balmer Lawrie might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Balmer Lawrie has impressed us by growing EPS at 13% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

We Really Like Balmer Lawrie's Dividend

Overall, a dividend increase is always good, and we think that Balmer Lawrie is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Balmer Lawrie that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.