Big 5 Sporting Goods (NASDAQ:BGFV) Has Announced That Its Dividend Will Be Reduced To $0.05
Big 5 Sporting Goods Corporation (NASDAQ:BGFV) is reducing its dividend from last year's comparable payment to $0.05 on the 22nd of March. However, the dividend yield of 4.3% is still a decent boost to shareholder returns.
Check out our latest analysis for Big 5 Sporting Goods
Big 5 Sporting Goods Might Find It Hard To Continue The Dividend
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Big 5 Sporting Goods is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Looking forward, earnings per share could rise by 13.4% over the next year if the trend from the last few years continues. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was $0.40, compared to the most recent full-year payment of $0.20. Doing the maths, this is a decline of about 6.7% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Company Could Face Some Challenges Growing The Dividend
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's encouraging to see that Big 5 Sporting Goods has been growing its earnings per share at 13% a year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.
Our Thoughts On Big 5 Sporting Goods' Dividend
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Big 5 Sporting Goods that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
