Dividend Investors: Don't Be Too Quick To Buy BGSF, Inc. (NYSE:BGSF) For Its Upcoming Dividend
BGSF, Inc. (NYSE:BGSF) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, BGSF investors that purchase the stock on or after the 17th of November will not receive the dividend, which will be paid on the 28th of November.
The company's next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Last year's total dividend payments show that BGSF has a trailing yield of 6.1% on the current share price of $9.8. 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 BGSF has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for BGSF
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. BGSF's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 50% of its free cash flow as dividends, within the usual range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. BGSF reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. BGSF's dividend payments are effectively flat on where they were nine years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
Get our latest analysis on BGSF's balance sheet health here.
The Bottom Line
From a dividend perspective, should investors buy or avoid BGSF? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of BGSF.
Although, if you're still interested in BGSF and want to know more, you'll find it very useful to know what risks this stock faces. For example - BGSF has 3 warning signs we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.
