Don't Buy Bajaj HealthCare Limited (NSE:BAJAJHCARE) For Its Next Dividend Without Doing These Checks

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Bajaj HealthCare Limited (NSE:BAJAJHCARE) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Bajaj HealthCare investors that purchase the stock on or after the 23rd of September will not receive the dividend, which will be paid on the 30th of October.

The company's next dividend payment will be ₹1.00 per share. Last year, in total, the company distributed ₹1.00 to shareholders. Looking at the last 12 months of distributions, Bajaj HealthCare has a trailing yield of approximately 0.3% on its current stock price of ₹383.15. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Bajaj HealthCare can afford its dividend, and if the dividend could grow.

See our latest analysis for Bajaj HealthCare

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bajaj HealthCare reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 4.5% of its free cash flow last year.

Click here to see how much of its profit Bajaj HealthCare paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Bajaj HealthCare was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bajaj HealthCare has delivered an average of 26% per year annual increase in its dividend, based on the past six years of dividend payments.

Get our latest analysis on Bajaj HealthCare's balance sheet health here.

To Sum It Up

Should investors buy Bajaj HealthCare for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think Bajaj HealthCare is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Bajaj HealthCare. Be aware that Bajaj HealthCare is showing 3 warning signs in our investment analysis, and 2 of those are concerning...

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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

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.