Bharti Airtel Limited (NSE:BHARTIARTL) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Bharti Airtel Limited (NSE:BHARTIARTL) is about to go ex-dividend in the next 3 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase Bharti Airtel's shares on or after the 18th of July will not receive the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is ₹16.00 a share, following on from the last 12 months, when the company distributed a total of ₹16.00 per share to shareholders. Looking at the last 12 months of distributions, Bharti Airtel has a trailing yield of approximately 0.8% on its current stock price of ₹1921.90. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Bharti Airtel's payout ratio is modest, at just 28% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 18% of its free cash flow last year.

It's positive to see that Bharti Airtel's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Bharti Airtel

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Bharti Airtel's earnings have been skyrocketing, up 77% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Bharti Airtel has increased its dividend at approximately 24% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is Bharti Airtel an attractive dividend stock, or better left on the shelf? It's great that Bharti Airtel 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.

While it's tempting to invest in Bharti Airtel for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 3 warning signs for Bharti Airtel (of which 1 makes us a bit uncomfortable!) you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.