Bell Financial Group (ASX:BFG) Will Pay A Smaller Dividend Than Last Year

Bell Financial Group Limited (ASX:BFG) has announced that on 15th of March, it will be paying a dividend ofA$0.045, which a reduction from last year's comparable dividend. However, the dividend yield of 6.7% is still a decent boost to shareholder returns.

See our latest analysis for Bell Financial Group

Bell Financial Group Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Bell Financial Group's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 339% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS could expand by 0.5% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 95%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of A$0.03 in 2013 to the most recent total annual payment of A$0.07. This works out to be a compound annual growth rate (CAGR) of approximately 8.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Bell Financial Group might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Bell Financial Group hasn't seen much change in its earnings per share over the last five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Bell Financial Group's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Bell Financial Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Bell Financial Group that investors should know about before committing capital to this stock. Is Bell Financial Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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