Bharat Dynamics (NSE:BDL) Is Increasing Its Dividend To ₹1.00

Bharat Dynamics Limited's (NSE:BDL) dividend will be increasing from last year's payment of the same period to ₹1.00 on 26th of October. Although the dividend is now higher, the yield is only 1.0%, which is below the industry average.

Check out our latest analysis for Bharat Dynamics

Bharat Dynamics' Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Bharat Dynamics' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 4.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

Bharat Dynamics' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2018, the annual payment back then was ₹7.29, compared to the most recent full-year payment of ₹8.30. This works out to be a compound annual growth rate (CAGR) of approximately 3.3% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

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. However, Bharat Dynamics has only grown its earnings per share at 4.5% per annum over the past five years. 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 Dynamics' Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Bharat Dynamics has 2 warning signs (and 1 which is significant) we think you should know about. Is Bharat Dynamics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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