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 Bharat Bijlee Limited (NSE:BBL) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 29th of August to receive the dividend, which will be paid on the 9th of October.

Bharat Bijlee's next dividend payment will be ₹12.50 per share, on the back of last year when the company paid a total of ₹12.50 to shareholders. Based on the last year's worth of payments, Bharat Bijlee has a trailing yield of 1.4% on the current stock price of ₹872.55. If you buy this business for its dividend, you should have an idea of whether Bharat Bijlee's dividend is reliable and sustainable. So we need to investigate whether Bharat Bijlee can afford its dividend, and if the dividend could grow.

View our latest analysis for Bharat Bijlee

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. Bharat Bijlee paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.5% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Bharat Bijlee paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Bharat Bijlee's earnings have been skyrocketing, up 67% per annum for the past five years. Bharat Bijlee looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bharat Bijlee's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. Bharat Bijlee is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Is Bharat Bijlee worth buying for its dividend? Bharat Bijlee has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Bharat Bijlee, and we would prioritise taking a closer look at it.

Keen to explore more data on Bharat Bijlee's financial performance? Check out our visualisation of its historical revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 editorial-team@simplywallst.com. 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.