Bharat Petroleum (NSE:BPCL) Is Paying Out Less In Dividends Than Last Year

Bharat Petroleum Corporation Limited (NSE:BPCL) has announced that on 28th of September, it will be paying a dividend of₹4.00, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 1.1%, which is lower than the average for the industry.

See our latest analysis for Bharat Petroleum

Bharat Petroleum's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Bharat Petroleum was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 34.1%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 7.6%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ₹1.83 in 2013, and the most recent fiscal year payment was ₹4.00. This implies that the company grew its distributions at a yearly rate of about 8.1% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Bharat Petroleum might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Bharat Petroleum has impressed us by growing EPS at 14% per year over the past five years. Bharat Petroleum definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Bharat Petroleum Looks Like A Great Dividend Stock

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Bharat Petroleum does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Bharat Petroleum (of which 2 don't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.