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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 Bata India Limited (NSE:BATAINDIA) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 22nd of July to receive the dividend, which will be paid on the 14th of August.
Bata India's next dividend payment will be ₹6.25 per share, on the back of last year when the company paid a total of ₹6.25 to shareholders. Calculating the last year's worth of payments shows that Bata India has a trailing yield of 0.5% on the current share price of ₹1360.95. If you buy this business for its dividend, you should have an idea of whether Bata India's dividend is reliable and sustainable. As a result, readers should always check whether Bata India has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bata India paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 19% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Bata India'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.
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. Fortunately for readers, Bata India's earnings per share have been growing at 11% a year for the past three years.
Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Bata India has lifted its dividend by approximately 17% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Has Bata India got what it takes to maintain its dividend payments? We love that Bata India is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Bata India looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Bata India? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.