Bega Cheese Limited (ASX:BGA) Will Pay A AU$0.05 Dividend In Four Days

Bega Cheese Limited (ASX:BGA) stock is about to trade ex-dividend in four days. This means that investors who purchase shares on or after the 7th of September will not receive the dividend, which will be paid on the 7th of October.

Bega Cheese's next dividend payment will be AU$0.05 per share. Last year, in total, the company distributed AU$0.10 to shareholders. Last year's total dividend payments show that Bega Cheese has a trailing yield of 1.8% on the current share price of A$5.55. If you buy this business for its dividend, you should have an idea of whether Bega Cheese's dividend is reliable and sustainable. As a result, readers should always check whether Bega Cheese has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Bega Cheese

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. Last year, Bega Cheese paid out 101% 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. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Bega Cheese fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Bega Cheese, with earnings per share up 4.1% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Bega Cheese has delivered 5.8% dividend growth per year on average over the past nine years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Bega Cheese an attractive dividend stock, or better left on the shelf? Bega Cheese has been steadily growing its earnings per share, and it is paying out just 24% of its cash flow but an uncomfortably high 101% of its income. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Bega Cheese's dividend merits.

Ever wonder what the future holds for Bega Cheese? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

If you decide to trade Bega Cheese, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.