Korado-Bulgaria AD (BUL:KBG) Is Due To Pay A Dividend Of лв0.19

The board of Korado-Bulgaria AD (BUL:KBG) has announced that it will pay a dividend of лв0.19 per share on the 16th of June. Based on this payment, the dividend yield on the company's stock will be 3.9%, which is an attractive boost to shareholder returns.

View our latest analysis for Korado-Bulgaria AD

Korado-Bulgaria AD's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Korado-Bulgaria AD was paying out quite a large proportion of both earnings and cash flow, with the dividend being 261% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Earnings per share could rise by 12.0% over the next year if things go the same way as they have for the last few years. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.

Korado-Bulgaria AD's Dividend Has Lacked Consistency

Looking back, Korado-Bulgaria AD's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2015, the dividend has gone from лв0.08 to лв0.29. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. Korado-Bulgaria AD 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Korado-Bulgaria AD has grown earnings per share at 12% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On Korado-Bulgaria AD's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Korado-Bulgaria AD is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Korado-Bulgaria AD that investors need to be conscious of moving forward. Is Korado-Bulgaria AD not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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