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How Does Birla Corporation Limited (NSE:BIRLACORPN) Fare As A Dividend Stock?
Could Birla Corporation Limited (NSE:BIRLACORPN) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
A slim 0.8% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Birla 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.
Click the interactive chart for our full dividend analysis
Payout ratios
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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Birla paid out 10% of its profit as dividends, over the trailing twelve month period. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.
Consider getting our latest analysis on Birla's financial position here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Birla has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was ₹7.0 in 2011, compared to ₹7.5 last year. Dividend payments have grown at less than 1% a year over this period.
Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Birla has grown its earnings per share at 28% per annum over the past five years. 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.
Conclusion
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're glad to see Birla has a low payout ratio, as this suggests earnings are being reinvested in the business. That said, we were glad to see it growing earnings and paying a fairly consistent dividend.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Birla that investors need to be conscious of moving forward.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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About NSEI:BIRLACORPN
Birla
Manufactures and sells cement and clinker in India and internationally.
Good value with proven track record and pays a dividend.