Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see B&M European Value Retail S.A. (LON:BME) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase B&M European Value Retail's shares before the 18th of November in order to receive the dividend, which the company will pay on the 17th of December.

The company's next dividend payment will be UK£0.05 per share, on the back of last year when the company paid a total of UK£0.17 to shareholders. Calculating the last year's worth of payments shows that B&M European Value Retail has a trailing yield of 2.9% on the current share price of £5.994. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether B&M European Value Retail has been able to grow its dividends, or if the dividend might be cut.

Check out 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. Fortunately B&M European Value Retail's payout ratio is modest, at just 42% of profit. A useful secondary check can be to evaluate whether B&M European Value Retail generated enough free cash flow to afford its dividend. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see B&M European Value Retail has grown its earnings rapidly, up 28% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last seven years, B&M European Value Retail has lifted its dividend by approximately 38% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

From a dividend perspective, should investors buy or avoid B&M European Value Retail? B&M European Value Retail has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. B&M European Value Retail looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in B&M European Value Retail for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for B&M European Value Retail you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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