Bhansali Engineering Polymers Limited (NSE:BEPL) Is About To Go Ex-Dividend, And It Pays A 3.8% Yield

Bhansali Engineering Polymers Limited (NSE:BEPL) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. In other words, investors can purchase Bhansali Engineering Polymers' shares before the 12th of September in order to be eligible for the dividend, which will be paid on the 20th of October.

The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹4.00 to shareholders. Based on the last year's worth of payments, Bhansali Engineering Polymers stock has a trailing yield of around 3.8% on the current share price of ₹105.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Bhansali Engineering Polymers paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 97% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Bhansali Engineering Polymers paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Bhansali Engineering Polymers to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Check out our latest analysis for Bhansali Engineering Polymers

Click here to see how much of its profit Bhansali Engineering Polymers paid out over the last 12 months.

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. It's encouraging to see Bhansali Engineering Polymers has grown its earnings rapidly, up 21% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, Bhansali Engineering Polymers has increased its dividend at approximately 51% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Bhansali Engineering Polymers? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Bhansali Engineering Polymers paid out a much higher percentage of its free cash flow, which makes us uncomfortable. All things considered, we are not particularly enthused about Bhansali Engineering Polymers from a dividend perspective.

However if you're still interested in Bhansali Engineering Polymers as a potential investment, you should definitely consider some of the risks involved with Bhansali Engineering Polymers. Our analysis shows 2 warning signs for Bhansali Engineering Polymers that we strongly recommend you have a look at before investing in the company.

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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.