Baby Bunting Group (ASX:BBN) Will Pay A Smaller Dividend Than Last Year

Baby Bunting Group Limited's (ASX:BBN) dividend is being reduced from last year's payment covering the same period to A$0.018 on the 19th of March. However, the dividend yield of 4.6% still remains in a typical range for the industry.

See our latest analysis for Baby Bunting Group

Baby Bunting Group's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Baby Bunting Group's dividend made up quite a large proportion of earnings but only 18% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 130.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Baby Bunting Group's Dividend Has Lacked Consistency

It's comforting to see that Baby Bunting Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 8 years was A$0.063 in 2016, and the most recent fiscal year payment was A$0.075. This works out to be a compound annual growth rate (CAGR) of approximately 2.2% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Baby Bunting Group May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Baby Bunting Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Baby Bunting Group's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Baby Bunting Group that investors should take into consideration. Is Baby Bunting Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.