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Big River Industries Limited (ASX:BRI) is reducing its dividend from last year's comparable payment to A$0.02 on the 4th of October. However, the dividend yield of 8.0% is still a decent boost to shareholder returns.
View our latest analysis for Big River Industries
Big River Industries' Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Big River Industries' dividend made up quite a large proportion of earnings but only 25% 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.
EPS is set to fall by 13.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 56%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Big River Industries' Dividend Has Lacked Consistency
It's comforting to see that Big River Industries 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. Since 2017, the dividend has gone from A$0.035 total annually to A$0.11. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Big River Industries has grown earnings per share at 20% per year over the past five years. However, Big River Industries isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
Big River Industries Looks Like A Great Dividend Stock
Overall, we think that Big River Industries could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.