Bhagiradha Chemicals & Industries (NSE:BHAGCHEM) Will Pay A Larger Dividend Than Last Year At ₹3.00

Bhagiradha Chemicals & Industries Limited (NSE:BHAGCHEM) will increase its dividend from last year's comparable payment on the 3rd of September to ₹3.00. This takes the annual payment to 0.3% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Bhagiradha Chemicals & Industries

Bhagiradha Chemicals & Industries' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Bhagiradha Chemicals & Industries' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 36.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 7.6% by next year, which is in a pretty sustainable range.

Bhagiradha Chemicals & Industries' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2014, the annual payment back then was ₹1.00, compared to the most recent full-year payment of ₹4.00. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Bhagiradha Chemicals & Industries has been growing its earnings per share at 36% a 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, this is probably not a great income stock, even though the dividend is being raised at the moment. While Bhagiradha Chemicals & Industries is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Bhagiradha Chemicals & Industries that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.