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The board of B&M European Value Retail S.A. (LON:BME) has announced that it will pay a dividend on the 2nd of August, with investors receiving £0.096 per share. The dividend yield will be 7.4% based on this payment which is still above the industry average.
Check out our latest analysis for B&M European Value Retail
B&M European Value Retail's Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, B&M European Value Retail's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
EPS is set to grow by 25.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 88%, which is on the higher side, but certainly still feasible.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from £0.018 total annually to £0.347. This implies that the company grew its distributions at a yearly rate of about 34% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that B&M European Value Retail has been growing its earnings per share at 13% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
We Really Like B&M European Value Retail's Dividend
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for B&M European Value Retail that investors need to be conscious of moving forward. Is B&M European Value Retail not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.