Readers hoping to buy Bharat Dynamics Limited (NSE:BDL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 18th of September will not receive this dividend, which will be paid on the 28th of October.
Bharat Dynamics’s next dividend payment will be ₹2.55 per share, on the back of last year when the company paid a total of ₹8.80 to shareholders. Based on the last year’s worth of payments, Bharat Dynamics has a trailing yield of 2.8% on the current stock price of ₹315.3. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Bharat Dynamics
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. That’s why it’s good to see Bharat Dynamics paying out a modest 41% of its earnings. A useful secondary check can be to evaluate whether Bharat Dynamics generated enough free cash flow to afford its dividend. Fortunately, it paid out only 42% of its free cash flow in the past year.
It’s positive to see that Bharat Dynamics’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Bharat Dynamics paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it’s a relief to see Bharat Dynamics earnings per share are up 8.0% per annum over the last five years. Management have been reinvested more than half of the company’s earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past two years, Bharat Dynamics has increased its dividend at approximately 9.9% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Has Bharat Dynamics got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Bharat Dynamics is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Bharat Dynamics is being conservative with its dividend payouts and could still perform reasonably over the long run. It’s a promising combination that should mark this company worthy of closer attention.
While it’s tempting to invest in Bharat Dynamics for the dividends alone, you should always be mindful of the risks involved. For example, we’ve found 3 warning signs for Bharat Dynamics (1 can’t be ignored!) that deserve your attention before investing in the shares.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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