The board of BayWa Aktiengesellschaft (ETR:BYW) has announced that it will be increasing its dividend on the 27th of May to €1.05. This takes the annual payment to 1.7% of the current stock price, which unfortunately is below what the industry is paying.
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. Investors will be pleased to see that BayWa's stock price has increased by 43% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
BayWa's Earnings Easily Cover the Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, BayWa's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share is forecast to rise by 17.5% over the next year. If the dividend continues on this path, the payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.
BayWa Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from €0.60 in 2012 to the most recent annual payment of €1.05. This means that it has been growing its distributions at 5.8% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see BayWa has been growing its earnings per share at 13% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Overall, we always like to see the dividend being raised, but we don't think BayWa will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for BayWa (1 is potentially serious!) 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.