Have you been keeping an eye on Bunzl plc's (LON:BNZL) upcoming dividend of UK£0.35 per share payable on the 01 July 2019? Then you only have 1 days left before the stock starts trading ex-dividend on the 23 May 2019. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Bunzl's latest financial data to analyse its dividend characteristics.
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5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Bunzl fit our criteria?
Bunzl has a trailing twelve-month payout ratio of 51%, which means that the dividend is covered by earnings. However, going forward, analysts expect BNZL's payout to fall to 42% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.6%. However, EPS should increase to £1.11, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. Unfortunately, it is really too early to view Bunzl as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Bunzl has a yield of 2.4%, which is on the low-side for Trade Distributors stocks.
If you are building an income portfolio, then Bunzl is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. Below, I've compiled three essential factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for BNZL’s future growth? Take a look at our free research report of analyst consensus for BNZL’s outlook.
- Valuation: What is BNZL worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BNZL is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.