BRP (TSE:DOO) Is Increasing Its Dividend To CA$0.215

BRP Inc. (TSE:DOO) will increase its dividend from last year's comparable payment on the 18th of April to CA$0.215. Even though the dividend went up, the yield is still quite low at only 1.7%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. BRP's stock price has reduced by 30% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

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BRP's Payment Could Potentially Have Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, BRP's 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.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 12%, which is in a comfortable range for us.

View our latest analysis for BRP

BRP's Dividend Has Lacked Consistency

It's comforting to see that BRP has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 8 years was CA$0.32 in 2017, and the most recent fiscal year payment was CA$0.86. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Limited 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. BRP's EPS has fallen by approximately 27% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

BRP's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for BRP that investors should know about before committing capital to this stock. Is BRP 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.