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Barings BDC, Inc. (NYSE:BBDC) will increase its dividend on the 15th of June to US$0.24. This will take the annual payment to 8.6% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for Barings BDC
Barings BDC Doesn't Earn Enough To Cover Its Payments
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Barings BDC was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.
Looking forward, earnings per share is forecast to fall by 9.8% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 111%, which is definitely a bit high to be sustainable going forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from US$1.76 to US$0.92. Doing the maths, this is a decline of about 6.3% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Barings BDC May Find It Hard To Grow The Dividend
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Although it's important to note that Barings BDC's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
The company has also been raising capital by issuing stock equal to 70% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think Barings BDC's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.
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. Just as an example, we've come across 4 warning signs for Barings BDC you should be aware of, and 2 of them can't be ignored. Is Barings BDC not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.