Should Income Investors Look At Bhansali Engineering Polymers Limited (NSE:BEPL) Before Its Ex-Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bhansali Engineering Polymers Limited (NSE:BEPL) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Thus, you can purchase Bhansali Engineering Polymers' shares before the 25th of July in order to receive the dividend, which the company will pay on the 2nd of August.

The company's next dividend payment will be ₹1.00 per share, and in the last 12 months, the company paid a total of ₹4.00 per share. Based on the last year's worth of payments, Bhansali Engineering Polymers has a trailing yield of 2.9% on the current stock price of ₹138.23. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Bhansali Engineering Polymers

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. Bhansali Engineering Polymers is paying out an acceptable 55% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Bhansali Engineering Polymers generated enough free cash flow to afford its dividend. Bhansali Engineering Polymers paid out more free cash flow than it generated - 155%, to be precise - last year, which we think is concerningly 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.

While Bhansali Engineering Polymers's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bhansali Engineering Polymers has delivered 51% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Has Bhansali Engineering Polymers got what it takes to maintain its dividend payments? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 155% of its cashflow, which is uncomfortably high. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Bhansali Engineering Polymers's dividend merits.

Want to learn more about Bhansali Engineering Polymers? Here's a visualisation of its historical rate of 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com