Bal Pharma Limited (NSE:BALPHARMA) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day 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 two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Thus, you can purchase Bal Pharma’s shares before the 16th of September in order to receive the dividend, which the company will pay on the 24th of October.
The company’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, Bal Pharma has a trailing yield of 1.1% on the current stock price of ₹100. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Bal Pharma can afford its dividend, and if the dividend could grow.
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. Bal Pharma paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Bal Pharma has grown its earnings rapidly, up 30% a year for the past five years. Bal Pharma earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky “beep-beep”. We also like that it is reinvesting most of its profits in its business.’
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last eight years, Bal Pharma has lifted its dividend by approximately 3.7% a year on average. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Should investors buy Bal Pharma for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it’s usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating Bal Pharma more closely.
On that note, you’ll want to research what risks Bal Pharma is facing. Every company has risks, and we’ve spotted 5 warning signs for Bal Pharma (of which 2 are a bit concerning!) you should know about.
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.
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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.
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