Bharat Petroleum Corporation Limited (NSE:BPCL) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Bharat Petroleum Corporation Limited (NSE:BPCL) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Bharat Petroleum investors that purchase the stock on or after the 9th of August will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be ₹10.50 per share, on the back of last year when the company paid a total of ₹21.00 to shareholders. Based on the last year's worth of payments, Bharat Petroleum has a trailing yield of 6.1% on the current stock price of ₹347.10. 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.

View our latest analysis for Bharat Petroleum

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Bharat Petroleum's payout ratio is modest, at just 33% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 20% of its free cash flow last year.

It's positive to see that Bharat Petroleum'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 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. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Bharat Petroleum's earnings per share have been growing at 17% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Bharat Petroleum has lifted its dividend by approximately 37% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

From a dividend perspective, should investors buy or avoid Bharat Petroleum? Bharat Petroleum has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Bharat Petroleum looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Bharat Petroleum is facing. For example, we've found 3 warning signs for Bharat Petroleum (1 doesn't sit too well with us!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.

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