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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Big River Industries Limited (ASX:BRI) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 18th of March, you won't be eligible to receive this dividend, when it is paid on the 21st of April.
Big River Industries's next dividend payment will be AU$0.026 per share, on the back of last year when the company paid a total of AU$0.052 to shareholders. Based on the last year's worth of payments, Big River Industries stock has a trailing yield of around 3.5% on the current share price of A$1.5. If you buy this business for its dividend, you should have an idea of whether Big River Industries's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's 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. Big River Industries paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. Luckily it paid out just 9.8% of its free cash flow last year.
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. Big River Industries reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
We'd also point out that Big River Industries issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Big River Industries has delivered an average of 10% per year annual increase in its dividend, based on the past four years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
We update our analysis on Big River Industries every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
From a dividend perspective, should investors buy or avoid Big River Industries? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Big River Industries's dividend merits.
So while Big River Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Big River Industries has 3 warning signs we think you should be aware of.
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.
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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