Dividend paying stocks like Koninklijke BAM Groep nv (AMS:BAMNB) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.
In this case, Koninklijke BAM Groep likely looks attractive to investors, given its 5.4% dividend yield and a payment history of over ten years. We'd guess that plenty of investors have purchased it for the income. The company also bought back stock equivalent to around 2.4% of market capitalisation this year. Some simple analysis can reduce the risk of holding Koninklijke BAM Groep for its dividend, and we'll focus on the most important aspects below.
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although it reported a loss over the past 12 months, Koninklijke BAM Groep currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.
Koninklijke BAM Groep's cash payout ratio last year was 12%, which is quite low and suggests that the dividend was thoroughly covered by cash flow.
With a strong net cash balance, Koninklijke BAM Groep investors may not have much to worry about in the near term from a dividend perspective.
We update our data on Koninklijke BAM Groep every 24 hours, so you can always get our latest analysis of its financial health, here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Koninklijke BAM Groep has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have fallen by 20% or more on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was €0.50 in 2009, compared to €0.14 last year. The dividend has fallen 72% over that period.
We struggle to make a case for buying Koninklijke BAM Groep for its dividend, given that payments have shrunk over the past ten years.
Dividend Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Koninklijke BAM Groep has grown its earnings per share at 22% per annum over the past five years.
To summarise, shareholders should always check that Koninklijke BAM Groep's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that Koninklijke BAM Groep paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. In sum, we find it hard to get excited about Koninklijke BAM Groep from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 4 Koninklijke BAM Groep analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
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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.