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Readers hoping to buy B&M European Value Retail S.A. (LON:BME) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, B&M European Value Retail investors that purchase the stock on or after the 12th of January will not receive the dividend, which will be paid on the 3rd of February.
The company's next dividend payment will be UK£0.20 per share, and in the last 12 months, the company paid a total of UK£0.41 per share. Based on the last year's worth of payments, B&M European Value Retail stock has a trailing yield of around 9.2% on the current share price of £4.5. If you buy this business for its dividend, you should have an idea of whether B&M European Value Retail's dividend is reliable and sustainable. So we need to investigate whether B&M European Value Retail can afford its dividend, and if the dividend could grow.
View our latest analysis for B&M European Value Retail
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. B&M European Value Retail paid out a comfortable 43% of its profit last year. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 2.5% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. It's encouraging to see B&M European Value Retail has grown its earnings rapidly, up 22% a year for the past five years. B&M European Value Retail is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.