Big River Industries Limited's (ASX:BRI) dividend will be increasing to AU$0.03 on 6th of October. This takes the dividend yield to 2.7%, which shareholders will be pleased with.
Big River Industries' Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Big River Industries' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 44% which is fairly sustainable.
Big River Industries' Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The first annual payment during the last 4 years was AU$0.035 in 2017, and the most recent fiscal year payment was AU$0.06. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Big River Industries has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Big River Industries' EPS has fallen by approximately 39% 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
The company has also been raising capital by issuing stock equal to 29% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think Big River Industries' payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 4 warning signs for Big River Industries that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid 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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