Bayerische Motoren Werke's (ETR:BMW) Shareholders Will Receive A Smaller Dividend Than Last Year

Bayerische Motoren Werke Aktiengesellschaft (ETR:BMW) has announced it will be reducing its dividend payable on the 20th of May to €6.00, which is 29% lower than what investors received last year for the same period. This means the annual payment is 7.9% of the current stock price, which is above the average for the industry.

See our latest analysis for Bayerische Motoren Werke

Bayerische Motoren Werke's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Bayerische Motoren Werke's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 5.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut 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 €8.50. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Bayerische Motoren Werke 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 Has Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Bayerische Motoren Werke has grown earnings per share at 8.2% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like Bayerische Motoren Werke's Dividend

Overall, we think that Bayerische Motoren Werke could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 identified 5 warning signs for Bayerische Motoren Werke (1 is a bit concerning!) that you should be aware of before investing. 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.