In This Article:
Bakkavor Group plc (LON:BAKK) will increase its dividend on the 28th of May to £0.048, which is 9.8% higher than last year's payment from the same period of £0.0437. This takes the dividend yield to 5.3%, which shareholders will be pleased with.
View our latest analysis for Bakkavor Group
Bakkavor Group's Projected Earnings Seem Likely To Cover Future Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Bakkavor Group's dividend made up quite a large proportion of earnings but only 49% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
The next year is set to see EPS grow by 49.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Bakkavor Group's Dividend Has Lacked Consistency
It's comforting to see that Bakkavor Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was £0.04 in 2018, and the most recent fiscal year payment was £0.08. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Bakkavor Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Has Growth Potential
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Bakkavor Group has impressed us by growing EPS at 8.7% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Bakkavor Group will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.