Blackmores (ASX:BKL) Is Increasing Its Dividend To AU$0.63

Blackmores Limited (ASX:BKL) will increase its dividend on the 12th of April to AU$0.63. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

View our latest analysis for Blackmores

Blackmores' Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. The last dividend was quite easily covered by Blackmores' earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 38.4%. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from AU$1.24 to AU$1.26. Dividend payments have been growing, but very slowly over the period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Blackmores' EPS has fallen by approximately 20% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Blackmores is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Blackmores that investors should take into consideration. 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.