Balmer Lawrie's (NSE:BALMLAWRIE) Shareholders Will Receive A Smaller Dividend Than Last Year

By
Simply Wall St
Published
September 03, 2021
NSEI:BALMLAWRIE
Source: Shutterstock

Balmer Lawrie & Co. Ltd. (NSE:BALMLAWRIE) has announced it will be reducing its dividend payable on the 28th of October to ₹6.00. The yield is still above the industry average at 4.6%.

See our latest analysis for Balmer Lawrie

Balmer Lawrie's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Balmer Lawrie's earnings. This means that a large portion of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 0.3% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 72%, which we are pretty comfortable with and we think is feasible on an earnings basis.

historic-dividend
NSEI:BALMLAWRIE Historic Dividend September 4th 2021

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was ₹2.48 in 2011, and the most recent fiscal year payment was ₹6.00. This means that it has been growing its distributions at 9.3% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

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. Although it's important to note that Balmer Lawrie's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Balmer Lawrie has 2 warning signs (and 1 which is a bit concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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