B&M European Value Retail S.A. (LON:BME) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 21st of November in order to be eligible for this dividend, which will be paid on the 20th of December.
B&M European Value Retail's next dividend payment will be UK£0.027 per share, and in the last 12 months, the company paid a total of UK£0.076 per share. Based on the last year's worth of payments, B&M European Value Retail has a trailing yield of 2.0% on the current stock price of £3.778. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether B&M European Value Retail has been able to grow its dividends, or if the dividend might be cut.
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. B&M European Value Retail paid out 58% of its earnings to investors last year, a normal payout level for most businesses. 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 93% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While B&M European Value Retail'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 B&M European Value Retail's ability to maintain its dividend.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 B&M European Value Retail has grown its earnings rapidly, up 23% a year for the past five years. Earnings have been growing quickly, 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. B&M European Value Retail has delivered 33% dividend growth per year on average over the past five years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is B&M European Value Retail worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note B&M European Value Retail paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, it's hard to get excited about B&M European Value Retail from a dividend perspective.
Curious what other investors think of B&M European Value Retail? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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