Dividend paying stocks like Bulgarian Stock Exchange AD (BUL:BSE) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
Investors might not know much about Bulgarian Stock Exchange AD's dividend prospects, even though it has been paying dividends for the last nine years and offers a 0.6% yield. A 0.6% yield is not inspiring, but the longer payment history has some appeal. Some simple analysis can reduce the risk of holding Bulgarian Stock Exchange AD for its dividend, and we'll focus on the most important aspects below.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, Bulgarian Stock Exchange AD paid out 7.4% of its profit as dividends. We'd say its dividends are thoroughly covered by earnings.
We update our data on Bulgarian Stock Exchange AD every 24 hours, so you can always get our latest analysis of its financial health, here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The first recorded dividend for Bulgarian Stock Exchange AD, in the last decade, was nine years ago. It's good to see that Bulgarian Stock Exchange AD has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past nine-year period, the first annual payment was лв0.05 in 2012, compared to лв0.03 last year. This works out to be a decline of approximately 4.8% per year over that time. Bulgarian Stock Exchange AD's dividend has been cut sharply at least once, so it hasn't fallen by 4.8% every year, but this is a decent approximation of the long term change.
We struggle to make a case for buying Bulgarian Stock Exchange AD for its dividend, given that payments have shrunk over the past nine years.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Bulgarian Stock Exchange AD has grown its earnings per share at 62% per annum over the past five years. The company is only paying out a fraction of its earnings as dividends, and in the past been able to use the retained earnings to grow its profits rapidly - an ideal combination.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're glad to see Bulgarian Stock Exchange AD has a low payout ratio, as this suggests earnings are being reinvested in the business. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Bulgarian Stock Exchange AD has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Bulgarian Stock Exchange AD that investors should know about before committing capital to this stock.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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