Read This Before Considering Bhansali Engineering Polymers Limited (NSE:BEPL) For Its Upcoming ₹1.00 Dividend

Readers hoping to buy Bhansali Engineering Polymers Limited (NSE:BEPL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Bhansali Engineering Polymers investors that purchase the stock on or after the 21st of June will not receive the dividend, which will be paid on the 2nd of July.

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 has a trailing yield of 3.9% on the current stock price of ₹102.92. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Bhansali Engineering Polymers

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 55% of its earnings to investors last year, a normal payout level for most businesses. 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. Over the past year it paid out 155% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

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.

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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 31% 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bhansali Engineering Polymers has delivered an average of 51% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Bhansali Engineering Polymers worth buying for its dividend? 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. Overall, it's hard to get excited about Bhansali Engineering Polymers from a dividend perspective.

Want to learn more about Bhansali Engineering Polymers's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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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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