Bharat Gears Limited (NSE:BHARATGEAR) Pays A ₹1.00 Dividend In Just Three Days
It looks like Bharat Gears Limited (NSE:BHARATGEAR) 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. Therefore, if you purchase Bharat Gears' shares on or after the 6th of August, you won't be eligible to receive the dividend, when it is paid on the 12th of September.
The company's next dividend payment will be ₹1.00 per share, and in the last 12 months, the company paid a total of ₹1.00 per share. Based on the last year's worth of payments, Bharat Gears stock has a trailing yield of around 0.8% on the current share price of ₹126.22. 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 Gears can afford its dividend, and if the dividend could grow.
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. Bharat Gears paid out just 9.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 0.008% of its cash flow last year.
It's positive to see that Bharat Gears'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 Bharat Gears
Click here to see how much of its profit Bharat Gears paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Bharat Gears's earnings per share have fallen at approximately 24% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, seven years ago, Bharat Gears has lifted its dividend by approximately 6.0% a year on average.
To Sum It Up
From a dividend perspective, should investors buy or avoid Bharat Gears? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Bharat Gears today.
So while Bharat Gears looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 4 warning signs we've spotted with Bharat Gears (including 1 which makes us a bit uncomfortable).
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.