Only Four Days Left To Cash In On Bharat Electronics' (NSE:BEL) Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bharat Electronics Limited (NSE:BEL) is about to trade ex-dividend in the next 4 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 Bharat Electronics' shares on or after the 13th of August will not receive the dividend, which will be paid on the 27th of September.
The company's next dividend payment will be ₹0.55 per share, on the back of last year when the company paid a total of ₹2.50 to shareholders. Calculating the last year's worth of payments shows that Bharat Electronics has a trailing yield of 0.6% on the current share price of ₹401.00. 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. Bharat Electronics paid out a comfortable 30% of its profit last year. A useful secondary check can be to evaluate whether Bharat Electronics generated enough free cash flow to afford its dividend. It paid out an unsustainably high 375% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
While Bharat Electronics's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Bharat Electronics's ability to maintain its dividend.
Check out our latest analysis for Bharat Electronics
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Bharat Electronics's earnings have been skyrocketing, up 24% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Bharat Electronics has lifted its dividend by 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
Should investors buy Bharat Electronics for the upcoming dividend? We like that Bharat Electronics has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. All things considered, we are not particularly enthused about Bharat Electronics from a dividend perspective.
In light of that, while Bharat Electronics has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Bharat Electronics that we recommend you consider before investing in the business.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.