BayWa (ETR:BYW) Will Pay A Larger Dividend Than Last Year At €1.20

The board of BayWa Aktiengesellschaft (ETR:BYW) has announced that the dividend on 9th of June will be increased to €1.20, which will be 14% higher than last year's payment of €1.05 which covered the same period. This takes the annual payment to 1.9% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for BayWa

BayWa's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, BayWa was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to fall by 50.2%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 53%, which is comfortable for the company to continue in the future.

BayWa Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was €0.60, compared to the most recent full-year payment of €1.05. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. BayWa has impressed us by growing EPS at 39% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think BayWa's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think BayWa is a great stock to add to your portfolio if income is your focus.

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. To that end, BayWa has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is BayWa not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.