Bharat Electronic Limited (NSE:BEL) is set to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date a company determines which shareholders are eligible to receive a dividend. It is important to know the ex-dividend date, because any trade in the stock must have settled by the record date. Therefore, if you buy shares of Bharat Electronics on or after August 8, you will not be eligible to receive the dividend when it is paid on September 24.
The company’s next dividend is ₹1.50 per share, following the last 12 months, when the company distributed a total of ₹4.50 per share to shareholders. Calculating the value of last year’s payments shows that Bharat Electronics has a yield of 1.6% on the current share price of ₹276.85. If you are buying this company for its dividend, you should get an idea of the reliability and sustainability of Bharat Electronics’ dividend. We need to see if the dividend is covered by earnings and if it increases.
Check out our latest analysis for Bharat Electronics
If a company pays out more dividends than it has earned, the dividend may become unsustainable – a less than ideal situation. Fortunately, Bharat Electronics’ payout ratio is modest at just 40% of profits. That said, even very profitable companies can sometimes not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. Fortunately, its dividend payouts only accounted for 28% of the free cash flow it generated, which is a comfortable payout ratio.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it is easier to increase the dividend when earnings increase. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. Luckily for readers, Bharat Electronics’ earnings per share have grown 14% annually over the past five years. The company managed to grow its profits at a rapid pace, while reinvesting most of the profits back into the business. Fast-growing companies that reinvest heavily are attractive from a dividend perspective, especially since they can often increase the payout ratio later.
Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Bharat Electronics has achieved an average annual increase of 21% per year in its dividend, based on the last 10 years of dividend payments. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing at the same time.
Does Bharat Electronics have what it takes to sustain its dividend payments? It’s great that Bharat Electronics is increasing its earnings per share while simultaneously paying out a small percentage of its earnings and cash flow. It’s disappointing to see the dividend cut at least once in the past, but as things stand 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.
On that note, you’ll want to research the risks that Bharat Electronics faces. For example – Bharat Electronics has 1 warning sign we think you should know.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.