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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Bharat Gears Limited (NSE:BHARATGEAR) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 29th of July, you won't be eligible to receive this dividend, when it is paid on the 5th of September.
Bharat Gears's upcoming dividend is ₹1.00 a share, following on from the last 12 months, when the company distributed a total of ₹1.00 per share to shareholders. Based on the last year's worth of payments, Bharat Gears stock has a trailing yield of around 1.2% on the current share price of ₹80.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Bharat Gears can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Bharat Gears
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Bharat Gears has a low and conservative payout ratio of just 6.5% of its income after tax. Bharat Gears paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
Click here to see how much of its profit Bharat Gears paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 Gears's earnings have been skyrocketing, up 82% per annum for the past five years.
Bharat Gears also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bharat Gears's dividend payments are effectively flat on where they were ten years ago.
To Sum It Up
Is Bharat Gears an attractive dividend stock, or better left on the shelf? Bharat Gears has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Bharat Gears, and we would prioritise taking a closer look at it.