BKW (VTX:BKW) Is Increasing Its Dividend To CHF3.70

The board of BKW AG (VTX:BKW) has announced that it will be increasing its dividend by 8.8% on the 6th of May to CHF3.70, up from last year's comparable payment of CHF3.40. This takes the annual payment to 2.3% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for BKW

BKW's Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, BKW's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 19.4%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

BKW Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of CHF1.20 in 2015 to the most recent total annual payment of CHF3.40. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. BKW has seen EPS rising for the last five years, at 14% per annum. BKW definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think BKW will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think BKW is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 BKW that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.