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Bega Cheese Limited (ASX:BGA) has announced that it will pay a dividend of AU$0.05 per share on the 24th of September. Including this payment, the dividend yield on the stock will be 1.8%, which is a modest boost for shareholders' returns.
Bega Cheese's Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Bega Cheese was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 12.0%. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.
Bega Cheese Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the first annual payment was AU$0.06, compared to the most recent full-year payment of AU$0.10. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Has Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Bega Cheese has grown earnings per share at 7.7% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
We'd also point out that Bega Cheese has issued stock equal to 41% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Bega Cheese Looks Like A Great Dividend Stock
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Bega Cheese that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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