U.S. markets open in 1 hour 3 minutes
  • S&P Futures

    4,137.25
    +4.50 (+0.11%)
     
  • Dow Futures

    33,589.00
    +19.00 (+0.06%)
     
  • Nasdaq Futures

    14,022.00
    +46.25 (+0.33%)
     
  • Russell 2000 Futures

    2,230.90
    +6.00 (+0.27%)
     
  • Crude Oil

    61.16
    +0.98 (+1.63%)
     
  • Gold

    1,744.60
    -3.00 (-0.17%)
     
  • Silver

    25.44
    +0.01 (+0.06%)
     
  • EUR/USD

    1.1967
    +0.0013 (+0.11%)
     
  • 10-Yr Bond

    1.6230
    0.0000 (0.00%)
     
  • Vix

    15.71
    -1.20 (-7.10%)
     
  • GBP/USD

    1.3760
    +0.0008 (+0.06%)
     
  • USD/JPY

    108.9330
    -0.1150 (-0.11%)
     
  • BTC-USD

    64,292.55
    +1,584.96 (+2.53%)
     
  • CMC Crypto 200

    1,386.33
    +92.34 (+7.14%)
     
  • FTSE 100

    6,917.44
    +26.95 (+0.39%)
     
  • Nikkei 225

    29,620.99
    -130.61 (-0.44%)
     

Is It Worth Buying Brunello Cucinelli S.p.A. (BIT:BC) For Its 1.3% Dividend Yield?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·5 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Dividend paying stocks like Brunello Cucinelli S.p.A. (BIT:BC) 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. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

Investors might not know much about Brunello Cucinelli's dividend prospects, even though it has been paying dividends for the last seven years and offers a 1.3% yield. A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Explore this interactive chart for our latest analysis on Brunello Cucinelli!

BIT:BC Historical Dividend Yield May 13th 2020
BIT:BC Historical Dividend Yield May 13th 2020

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Brunello Cucinelli paid out 45% of its profit as dividends, over the trailing twelve month period. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Brunello Cucinelli's cash payout ratio in the last year was 30%, which suggests dividends were well covered by cash generated by the business. It's positive to see that Brunello Cucinelli'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.

Remember, you can always get a snapshot of Brunello Cucinelli's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

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. Brunello Cucinelli has been paying a dividend for the past seven years. Its dividend has not fluctuated much that time, which we like, but we're conscious that the company might not yet have a track record of maintaining dividends in all economic conditions. During the past seven-year period, the first annual payment was €0.08 in 2013, compared to €0.35 last year. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time.

Brunello Cucinelli has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Brunello Cucinelli has grown its earnings per share at 9.7% per annum over the past five years. It's good to see decent earnings growth and a low payout ratio. Companies with these characteristics often display the fastest dividend growth over the long term - assuming earnings can be maintained, of course.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, we like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. Brunello Cucinelli performs highly under this analysis, although it falls slightly short of our exacting standards. At the right valuation, it could be a solid dividend prospect.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Brunello Cucinelli that investors need to be conscious of moving forward.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.