It looks like Bioventix PLC (LON:BVXP) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 31st of October will not receive this dividend, which will be paid on the 15th of November.
Bioventix's upcoming dividend is UK£0.9 a share, following on from the last 12 months, when the company distributed a total of UK£1.2 per share to shareholders. Last year's total dividend payments show that Bioventix has a trailing yield of 3.8% on the current share price of £31.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bioventix paid out more than half (64%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Bioventix'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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Bioventix has grown its earnings rapidly, up 26% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last nine years, Bioventix has lifted its dividend by approximately 29% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Has Bioventix got what it takes to maintain its dividend payments? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Bioventix's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 64% and 56% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Bioventix's dividend merits.
Curious about whether Bioventix has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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.