Bayerische Motoren Werke (ETR:BMW) Has Announced That Its Dividend Will Be Reduced To €6.00

Bayerische Motoren Werke Aktiengesellschaft's (ETR:BMW) dividend is being reduced from last year's payment covering the same period to €6.00 on the 21st of May. Despite the cut, the dividend yield of 5.6% will still be comparable to other companies in the industry.

See our latest analysis for Bayerische Motoren Werke

Bayerische Motoren Werke's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, Bayerische Motoren Werke's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to fall by 3.6% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 38%, which is comfortable for the company to continue in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of €2.60 in 2014 to the most recent total annual payment of €6.00. This means that it has been growing its distributions at 8.7% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Bayerische Motoren Werke has grown earnings per share at 11% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Bayerische Motoren Werke's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Bayerische Motoren Werke has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Bayerische Motoren Werke (of which 2 make us uncomfortable!) you should know about. Is Bayerische Motoren Werke 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.