Could Bhansali Engineering Polymers Limited (NSE:BEPL) be an attractive dividend share to own for the long haul? Investors are often drawn to a company for its dividend. Unfortunately, one common occurrence with dividend companies is for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
A slim 0.4% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Bhansali Engineering Polymers could have potential. Before you buy any stock for its dividend however, you should always remember Warren Buffett’s two rules: 1) Don’t lose money, and 2) Remember rule #1. We’ll run through some checks below to help with this.Explore this interactive chart for our latest analysis on Bhansali Engineering Polymers!
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. So we need to be form a view on if a company’s dividend is sustainable, relative to its net profit after tax. In the last year, Bhansali Engineering Polymers paid out 5.0% of its profit as dividends. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Bhansali Engineering Polymers’s cash payout ratio last year was 2.0%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.
Remember, you can always get a snapshot of Bhansali Engineering Polymers’s latest financial position, by checking our visualisation of its financial health.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Bhansali Engineering Polymers’s dividend payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past ten-year period, the first annual payment was ₹0.10 in 2009, compared to ₹0.30 last year. Dividends per share have grown at approximately 12% per year over this time.
Dividend Growth Potential
While dividend payments have been relatively stable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend’s purchasing power over the long term. Bhansali Engineering Polymers’s earnings per share are up 143% on last year. We’re glad to see EPS up on last year, but we’re conscious that growth rates typically slow as companies increase in size. The company is only paying out a fraction of its earnings as dividends, and in the past been able to use the retained earnings to grow its profits rapidly – an ideal combination. While one year of growth is good, we’d be remiss not to point out that a majority of companies see their growth rates slow over a longer period.
To summarise, shareholders should always check that Bhansali Engineering Polymers’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we like that the company’s dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. We like that it has been delivering solid earnings growth and relatively consistent dividend payments. Bhansali Engineering Polymers has met all of our criteria, including having strong cash flow that covers the dividend. We definitely think it could be worth looking closer.
You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Bhansali Engineering Polymers stock.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.