Breville Group (ASX:BRG) Could Be A Buy For Its Upcoming Dividend

Breville Group Limited (ASX:BRG) is about to trade ex-dividend in the next three days. Ex-dividend means that investors that purchase the stock on or after the 25th of February will not receive this dividend, which will be paid on the 18th of March.

Breville Group's upcoming dividend is AU$0.13 a share, following on from the last 12 months, when the company distributed a total of AU$0.41 per share to shareholders. Based on the last year's worth of payments, Breville Group stock has a trailing yield of around 1.4% on the current share price of A$30.2. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Breville Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Breville Group is paying out an acceptable 56% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 37% of its free cash flow in the past year.

It's positive to see that Breville Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Breville Group's earnings per share have risen 11% per annum over the last five years. Breville Group is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Breville Group has delivered an average of 19% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Breville Group worth buying for its dividend? Breville Group's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Breville Group is facing. Every company has risks, and we've spotted 1 warning sign for Breville Group you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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