Dalmia Bharat (NSE:DALBHARAT) Has Affirmed Its Dividend Of ₹4.00

Dalmia Bharat Limited's (NSE:DALBHARAT) investors are due to receive a payment of ₹4.00 per share on 18th of November. This payment means that the dividend yield will be 0.5%, which is around the industry average.

Check out our latest analysis for Dalmia Bharat

Dalmia Bharat's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Dalmia Bharat was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 84.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dalmia Bharat's Dividend Has Lacked Consistency

It's comforting to see that Dalmia Bharat has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of ₹2.00 in 2019 to the most recent total annual payment of ₹9.00. This means that it has been growing its distributions at 35% per annum over that time. Dalmia Bharat 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. Dalmia Bharat has impressed us by growing EPS at 13% per year over the past five years. Dalmia Bharat definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Dalmia Bharat's payments, as there could be some issues with sustaining them into the future. While Dalmia Bharat 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Dalmia Bharat that investors need to be conscious of moving forward. Is Dalmia Bharat not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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