It looks like Burberry Group plc (LON:BRBY) is about to go ex-dividend in the next 3 days. You can purchase shares before the 19th of December in order to receive the dividend, which the company will pay on the 31st of January.
Burberry Group's upcoming dividend is UK£0.11 a share, following on from the last 12 months, when the company distributed a total of UK£0.42 per share to shareholders. Looking at the last 12 months of distributions, Burberry Group has a trailing yield of approximately 2.0% on its current stock price of £21.2. If you buy this business for its dividend, you should have an idea of whether Burberry Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. That's why it's good to see Burberry Group paying out a modest 49% of its earnings. A useful secondary check can be to evaluate whether Burberry Group generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 50% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Burberry Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 Burberry Group earnings per share are up 3.4% per annum over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, Burberry Group has increased its dividend at approximately 13% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Burberry Group worth buying for its dividend? Earnings per share growth has been growing somewhat, and Burberry Group is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Burberry Group is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.
Curious what other investors think of Burberry Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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