Black Diamond Group Limited (TSE:BDI) has announced that it will pay a dividend of CA$0.02 per share on the 15th of October. The dividend yield will be 1.2% based on this payment which is still above the industry average.
Black Diamond Group's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Black Diamond Group was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
EPS is set to fall by 20.3% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 18%, which we are pretty comfortable with and we think is feasible on an earnings basis.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of CA$0.72 in 2013 to the most recent total annual payment of CA$0.08. The dividend has fallen 89% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see that Black Diamond Group has been growing its earnings per share at 84% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
We Really Like Black Diamond Group's Dividend
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Black Diamond Group has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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