Bega Cheese's (ASX:BGA) Upcoming Dividend Will Be Larger Than Last Year's

Bega Cheese Limited (ASX:BGA) has announced that it will be increasing its dividend on the 24th of March to AU$0.055. Although the dividend is now higher, the yield is only 2.2%, which is below the industry average.

See our latest analysis for Bega Cheese

Bega Cheese's Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Bega Cheese's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to fall by 16.4%. If the dividend continues along recent trends, we estimate the payout ratio could be 50%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Bega Cheese Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was AU$0.06 in 2012, and the most recent fiscal year payment was AU$0.11. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Bega Cheese Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Bega Cheese has impressed us by growing EPS at 5.7% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Bega Cheese Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Bega Cheese is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 9 Bega Cheese analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.