Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bell Financial Group Limited (ASX:BFG) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Bell Financial Group investors that purchase the stock on or after the 18th of August will not receive the dividend, which will be paid on the 26th of August.
The company's upcoming dividend is AU$0.045 a share, following on from the last 12 months, when the company distributed a total of AU$0.11 per share to shareholders. Based on the last year's worth of payments, Bell Financial Group has a trailing yield of 6.2% on the current stock price of A$1.785. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 75% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Bell Financial Group's earnings per share have risen 19% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bell Financial Group has delivered an average of 2.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Should investors buy Bell Financial Group for the upcoming dividend? Earnings per share are growing at an attractive rate, and Bell Financial Group is paying out a bit over half its profits. In summary, Bell Financial Group appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
While it's tempting to invest in Bell Financial Group for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Bell Financial Group that we recommend you consider before investing in the business.
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.
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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.
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