Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, BEML Limited (NSE:BEML) has been paying a dividend to shareholders. Today it yields 1.4%. Does BEML tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does BEML pass our checks?
The current trailing twelve-month payout ratio for the stock is 26%, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Not only have dividend payouts from BEML fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, BEML generates a yield of 1.4%, which is high for Machinery stocks but still below the market’s top dividend payers.
After digging a little deeper into BEML’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three essential factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for BEML’s future growth? Take a look at our free research report of analyst consensus for BEML’s outlook.
- Valuation: What is BEML worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BEML is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.