Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bell Financial Group Limited (ASX:BFG) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 5th of March in order to be eligible for this dividend, which will be paid on the 18th of March.
Bell Financial Group's next dividend payment will be AU$0.045 per share, on the back of last year when the company paid a total of AU$0.08 to shareholders. Last year's total dividend payments show that Bell Financial Group has a trailing yield of 7.1% on the current share price of A$1.12. If you buy this business for its dividend, you should have an idea of whether Bell Financial Group'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. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Bell Financial Group's earnings have been skyrocketing, up 35% per annum for the past five years.
Bell Financial Group also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Bell Financial Group has lifted its dividend by approximately 7.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Bell Financial Group for the upcoming dividend? Earnings per share are growing at an attractive rate, and Bell Financial Group is paying out a bit over half its profits. We think this is a pretty attractive combination, and would be interested in investigating Bell Financial Group more closely.
Want to learn more about Bell Financial Group's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.
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.
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. Thank you for reading.