Why You Might Be Interested In Bharat Electronics Limited (NSE:BEL) For Its Upcoming Dividend

It looks like Bharat Electronics Limited (NSE:BEL) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 23rd of March will not receive the dividend, which will be paid on the 15th of April.

Bharat Electronics's next dividend payment will be ₹1.40 per share, on the back of last year when the company paid a total of ₹2.80 to shareholders. Looking at the last 12 months of distributions, Bharat Electronics has a trailing yield of approximately 2.1% on its current stock price of ₹133.85. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Bharat Electronics has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Bharat Electronics

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Bharat Electronics paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Bharat Electronics generated enough free cash flow to afford its dividend. Over the last year it paid out 59% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Bharat Electronics earnings per share are up 10.0% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Bharat Electronics has increased its dividend at approximately 17% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Bharat Electronics? Earnings per share have been growing at a steady rate, and Bharat Electronics paid out less than half its profits and more than half its free cash flow as dividends over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Bharat Electronics today.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 1 warning sign with Bharat Electronics and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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