Bal Pharma Limited (NSE:BALPHARMA) Passed Our Checks, And It's About To Pay A ₹1.20 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bal Pharma Limited (NSE:BALPHARMA) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Bal Pharma's shares on or after the 18th of September will not receive the dividend, which will be paid on the 25th of October.

The company's next dividend payment will be ₹1.20 per share, and in the last 12 months, the company paid a total of ₹1.20 per share. Based on the last year's worth of payments, Bal Pharma stock has a trailing yield of around 0.9% on the current share price of ₹136.13. If you buy this business for its dividend, you should have an idea of whether Bal Pharma's dividend is reliable and sustainable. As a result, readers should always check whether Bal Pharma has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Bal Pharma

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Bal Pharma paid out a comfortable 26% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 13% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Bal Pharma's earnings per share have risen 12% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Bal Pharma has lifted its dividend by approximately 1.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Bal Pharma is keeping back more of its profits to grow the business.

The Bottom Line

Has Bal Pharma got what it takes to maintain its dividend payments? It's great that Bal Pharma is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Bal Pharma has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 3 warning signs for Bal Pharma (1 is concerning!) that you ought to be aware of before buying the shares.

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.

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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.