Just Three Days Till Balmer Lawrie & Co. Ltd. (NSE:BALMLAWRIE) Will Be Trading Ex-Dividend
Balmer Lawrie & Co. Ltd. (NSE:BALMLAWRIE) is about to trade ex-dividend in the next 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Balmer Lawrie's shares on or after the 11th of September, you won't be eligible to receive the dividend, when it is paid on the 21st of October.
The company's upcoming dividend is ₹4.25 a share, following on from the last 12 months, when the company distributed a total of ₹8.50 per share to shareholders. Based on the last year's worth of payments, Balmer Lawrie stock has a trailing yield of around 4.8% on the current share price of ₹177.98. If you buy this business for its dividend, you should have an idea of whether Balmer Lawrie's dividend is reliable and sustainable. So we need to investigate whether Balmer Lawrie can afford its dividend, and if the dividend could grow.
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. Balmer Lawrie paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. 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. The company paid out 94% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
While Balmer Lawrie'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 Balmer Lawrie's ability to maintain its dividend.
View our latest analysis for Balmer Lawrie
Click here to see how much of its profit Balmer Lawrie 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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Balmer Lawrie's earnings per share have been growing at 18% a year for the past five years. Earnings have been growing at a decent 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. Balmer Lawrie has delivered an average of 9.8% 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.
Final Takeaway
Is Balmer Lawrie worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Balmer Lawrie paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, while it has some positive characteristics, we're not inclined to race out and buy Balmer Lawrie today.
If you're not too concerned about Balmer Lawrie's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 1 warning sign for Balmer Lawrie 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.