Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bloomsbury Publishing plc (LON:BMY) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 5th of November, you won't be eligible to receive this dividend, when it is paid on the 4th of December.
Bloomsbury Publishing's upcoming dividend is UK£0.013 a share, following on from the last 12 months, when the company distributed a total of UK£0.026 per share to shareholders. Calculating the last year's worth of payments shows that Bloomsbury Publishing has a trailing yield of 1.0% on the current share price of £2.555. 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 Bloomsbury Publishing has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Bloomsbury Publishing paid out just 8.5% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. It paid out 4.4% of its free cash flow as dividends last year, which is conservatively low.
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.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Bloomsbury Publishing earnings per share are up 5.4% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bloomsbury Publishing's dividend payments per share have declined at 5.0% per year on average over the past 10 years, which is uninspiring. Bloomsbury Publishing 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.
Should investors buy Bloomsbury Publishing for the upcoming dividend? Earnings per share have been growing moderately, and Bloomsbury Publishing is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Bloomsbury Publishing is being conservative with its dividend payouts and could still perform reasonably over the long run. Bloomsbury Publishing looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while Bloomsbury Publishing has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 3 warning signs with Bloomsbury Publishing and understanding them should be part of your investment process.
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.
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. 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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