Bhagiradha Chemicals & Industries (NSE:BHAGCHEM) Is Paying Out A Larger Dividend Than Last Year

The board of Bhagiradha Chemicals & Industries Limited (NSE:BHAGCHEM) has announced that it will be increasing its dividend by 50% on the 3rd of September to ₹3.00, up from last year's comparable payment of ₹2.00. Although the dividend is now higher, the yield is only 0.2%, which is below the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Bhagiradha Chemicals & Industries' stock price has increased by 47% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Bhagiradha Chemicals & Industries

Bhagiradha Chemicals & Industries' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Bhagiradha Chemicals & Industries is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share could rise by 36.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 7.5% by next year, which we think can be pretty sustainable going forward.

Bhagiradha Chemicals & Industries' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 9 years was ₹1.00 in 2014, and the most recent fiscal year payment was ₹3.00. This means that it has been growing its distributions at 13% per annum over that time. Bhagiradha Chemicals & Industries has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Bhagiradha Chemicals & Industries has grown earnings per share at 36% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Bhagiradha Chemicals & Industries will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Bhagiradha Chemicals & Industries that you should be aware of before investing. Is Bhagiradha Chemicals & Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.