Bajaj Finance (NSE:BAJFINANCE) Is Increasing Its Dividend To ₹30.00

Bajaj Finance Limited's (NSE:BAJFINANCE) dividend will be increasing from last year's payment of the same period to ₹30.00 on 25th of August. Despite this raise, the dividend yield of 0.4% is only a modest boost to shareholder returns.

See our latest analysis for Bajaj Finance

Bajaj Finance's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Bajaj Finance was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 90.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 10%, which is in the range that makes us comfortable with the sustainability of the dividend.

Bajaj Finance Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was ₹1.20, compared to the most recent full-year payment of ₹30.00. This means that it has been growing its distributions at 38% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Bajaj Finance has impressed us by growing EPS at 34% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Bajaj Finance's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Bajaj Finance's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Bajaj Finance is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for Bajaj Finance (of which 2 are concerning!) you should know about. Is Bajaj Finance not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.