Here's What We Like About Bharat Dynamics' (NSE:BDL) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bharat Dynamics Limited (NSE:BDL) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Bharat Dynamics' shares on or after the 21st of September will not receive the dividend, which will be paid on the 28th of October.

The company's next dividend payment will be ₹0.40 per share, on the back of last year when the company paid a total of ₹4.90 to shareholders. Looking at the last 12 months of distributions, Bharat Dynamics has a trailing yield of approximately 0.4% on its current stock price of ₹1136.00. 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 Bharat Dynamics can afford its dividend, and if the dividend could grow.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bharat Dynamics paid out a comfortable 43% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.

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.

Check out our latest analysis for Bharat Dynamics

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Bharat Dynamics's earnings per share have been growing at 15% a year for the past five years. Bharat Dynamics is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past eight years, Bharat Dynamics has increased its dividend at approximately 3.8% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

From a dividend perspective, should investors buy or avoid Bharat Dynamics? Earnings per share have grown at a nice rate in recent times and over the last year, Bharat Dynamics paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Bharat Dynamics, and we would prioritise taking a closer look at it.

While it's tempting to invest in Bharat Dynamics for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Bharat Dynamics and you should be aware of it before buying any shares.

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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.