In This Article:
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Becker Milk Company Limited (TSE:BEK.B) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 23rd of September will not receive this dividend, which will be paid on the 4th of October.
Becker Milk's next dividend payment will be CA$0.4 per share, on the back of last year when the company paid a total of CA$0.8 to shareholders. Calculating the last year's worth of payments shows that Becker Milk has a trailing yield of 5.6% on the current share price of CA$14.3. 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! So we need to investigate whether Becker Milk can afford its dividend, and if the dividend could grow.
See our latest analysis for Becker Milk
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, Becker Milk paid out 103% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 102% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.
As Becker Milk's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Click here to see how much of its profit Becker Milk paid out over the last 12 months.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Becker Milk has grown its earnings rapidly, up 55% a year for the past five years. Becker Milk's dividend was not well covered by earnings, although at least its earnings per share are growing quickly. Fast-growing businesses normally need to reinvest most of their earnings in order to maintain growth, so we'd suspect that either earnings growth will slow or the dividend may not be increased for a while.