Dividend Investors: Don't Be Too Quick To Buy Bajaj Electricals Limited (NSE:BAJAJELEC) For Its Upcoming Dividend
It looks like Bajaj Electricals Limited (NSE:BAJAJELEC) 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Bajaj Electricals' shares on or after the 17th of July, you won't be eligible to receive the dividend, when it is paid on the 10th of August.
The company's next dividend payment will be ₹3.00 per share, and in the last 12 months, the company paid a total of ₹3.00 per share. Calculating the last year's worth of payments shows that Bajaj Electricals has a trailing yield of 0.9% on the current share price of ₹331.10. 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 check whether the dividend payments are covered, and if earnings are growing.
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. Bajaj Electricals reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Bajaj Electricals didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 6.5% of its free cash flow last year.
View our latest analysis for Bajaj Electricals
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Bajaj Electricals was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
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, Bajaj Electricals has lifted its dividend by approximately 0.7% a year on average.
We update our analysis on Bajaj Electricals every 24 hours, so you can always get the latest insights on its financial health, here.
Final Takeaway
Is Bajaj Electricals an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Although, if you're still interested in Bajaj Electricals and want to know more, you'll find it very useful to know what risks this stock faces. For example, Bajaj Electricals has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
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.