Dividend Investors: Don't Be Too Quick To Buy Bhansali Engineering Polymers Limited (NSE:BEPL) For Its Upcoming Dividend
Readers hoping to buy Bhansali Engineering Polymers Limited (NSE:BEPL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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. In other words, investors can purchase Bhansali Engineering Polymers' shares before the 13th of July in order to be eligible for the dividend, which will be paid on the 31st of July.
The company's upcoming dividend is ₹1.00 a share, following on from the last 12 months, when the company distributed a total of ₹4.00 per share to shareholders. Calculating the last year's worth of payments shows that Bhansali Engineering Polymers has a trailing yield of 4.2% on the current share price of ₹96.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Bhansali Engineering Polymers is paying out an acceptable 55% of its profit, a common payout level among most companies. 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 more than half (75%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Bhansali Engineering Polymers'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.
Check out our latest analysis for Bhansali Engineering Polymers
Click here to see how much of its profit Bhansali Engineering Polymers paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Bhansali Engineering Polymers's earnings per share have dropped 12% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
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, Bhansali Engineering Polymers has increased its dividend at approximately 51% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
Final Takeaway
From a dividend perspective, should investors buy or avoid Bhansali Engineering Polymers? While earnings per share are shrinking, it's encouraging to see that at least Bhansali Engineering Polymers's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Bhansali Engineering Polymers as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Bhansali Engineering Polymers has 1 warning sign we think you should be aware of.
If you're in the market for strong dividend payers, we recommend checking 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.