Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Big 5 Sporting Goods Corporation (NASDAQ:BGFV) has paid dividends to shareholders, and these days it yields 4.9%. Should it have a place in your portfolio? Let’s take a look at Big 5 Sporting Goods in more detail.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
Does Big 5 Sporting Goods pass our checks?
The current payout ratio for BGFV is negative, which is not great.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Not only have dividend payouts from Big 5 Sporting Goods fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, Big 5 Sporting Goods generates a yield of 4.9%, which is high for Specialty Retail stocks.
Now you know to keep in mind the reason why investors should be careful investing in Big 5 Sporting Goods for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for BGFV’s future growth? Take a look at our free research report of analyst consensus for BGFV’s outlook.
- Valuation: What is BGFV worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BGFV is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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.