In This Article:
Dividend paying stocks like BLS International Services Limited (NSE:BLS) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
With only a three-year payment history, and a 1.2% yield, investors probably think BLS International Services is not much of a dividend stock. While it may not look like much, if earnings are growing it could become quite interesting. Remember that the recent share price drop will make BLS International Services's yield look higher, even though recent events might have impacted the company's prospects. There are a few simple ways to reduce the risks of buying BLS International Services for its dividend, and we'll go through these below.
Explore this interactive chart for our latest analysis on BLS International Services!
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 11% of BLS International Services's profits were paid out as dividends in the last 12 months. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.
Remember, you can always get a snapshot of BLS International Services's latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. The dividend has not fluctuated much, but with a relatively short payment history, we can't be sure this is sustainable across a full market cycle. During the past three-year period, the first annual payment was ₹0.10 in 2016, compared to ₹1.00 last year. Dividends per share have grown at approximately 115% per year over this time.
We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see BLS International Services has grown its earnings per share at 35% per annum over the past five years. Earnings per share have grown rapidly, and the company is retaining a majority of its earnings. We think this is ideal from an investment perspective, if the company is able to reinvest these earnings effectively.