Bal Pharma (NSE:BALPHARMA) Will Pay A Dividend Of ₹1.20

Bal Pharma Limited's (NSE:BALPHARMA) investors are due to receive a payment of ₹1.20 per share on 25th of October. This makes the dividend yield 1.4%, which will augment investor returns quite nicely.

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Bal Pharma's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Bal Pharma was paying only paying out a fraction of earnings, but the payment was a massive 124% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 39.2% over the next 12 months. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Bal Pharma

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ₹1.00 in 2015 to the most recent total annual payment of ₹1.20. This works out to be a compound annual growth rate (CAGR) of approximately 1.8% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Bal Pharma has impressed us by growing EPS at 39% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Bal Pharma you should be aware of, and 1 of them is significant. Is Bal Pharma not quite the opportunity you were looking for? Why not check out our selection of top 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.