Balkrishna Industries Limited (NSE:BALKRISIND) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 20th of August, you won't be eligible to receive this dividend, when it is paid on the 9th of September.
Balkrishna Industries's next dividend payment will be ₹2.00 per share, and in the last 12 months, the company paid a total of ₹8.00 per share. Calculating the last year's worth of payments shows that Balkrishna Industries has a trailing yield of 1.1% on the current share price of ₹734.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Balkrishna Industries is paying out just 21% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Balkrishna Industries generated enough free cash flow to afford its dividend. It paid out an unsustainably high 216% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Balkrishna Industries intends to continue funding this dividend, or if it could be forced to the payment.
While Balkrishna Industries'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. Cash is king, as they say, and were Balkrishna Industries to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
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. With that in mind, we're encouraged by the steady growth at Balkrishna Industries, with earnings per share up 8.9% on average over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Balkrishna Industries has delivered an average of 30% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Is Balkrishna Industries an attractive dividend stock, or better left on the shelf? Balkrishna Industries delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 216% of its cash flow over the last year, which is a mediocre outcome. In summary, it's hard to get excited about Balkrishna Industries from a dividend perspective.
Curious what other investors think of Balkrishna Industries? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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