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Is BHB Brauholding Bayern-Mitte AG (FRA:B9B) a good dividend stock? How would you know? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it’s common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
With a 2.0% yield and a seven-year payment history, investors probably think BHB Brauholding Bayern-Mitte looks like a reliable dividend stock. While the yield may not look too great, the relatively long payment history is interesting. Some simple research can reduce the risk of buying BHB Brauholding Bayern-Mitte for its dividend – read on to learn more.
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. BHB Brauholding Bayern-Mitte paid out 85% of its profit as dividends, over the trailing twelve month period. It’s paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. BHB Brauholding Bayern-Mitte’s cash payout ratio in the last year was 38%, which suggests dividends were well covered by cash generated by the business. It’s positive to see that BHB Brauholding Bayern-Mitte’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Remember, you can always get a snapshot of BHB Brauholding Bayern-Mitte’s latest financial position, by checking our visualisation of its financial health.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the data, we can see that BHB Brauholding Bayern-Mitte has been paying a dividend for the past seven years. The dividend has been quite stable over the past seven years, which is great to see – although we usually like to see the dividend maintained for a decade before giving it full marks, though. Its most recent annual dividend was €0.06 per share, effectively flat on its first payment seven years ago.
We like that the dividend hasn’t been shrinking. However we’re conscious that the company hasn’t got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.
Dividend Growth Potential
Examining whether the dividend is affordable and stable is important. However, it’s also important to assess if earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. Over the past five years, it looks as though BHB Brauholding Bayern-Mitte’s EPS have declined at around 2.5% a year. Declining earnings per share over a number of years is not a great sign for the dividend investor. Without some improvement, this does not bode well for the long term value of a company’s dividend.
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. BHB Brauholding Bayern-Mitte’s payout ratios are within a normal range for the average corporation, and we like that its cashflow was stronger than reported profits. Earnings per share are down, and to our mind BHB Brauholding Bayern-Mitte has not been paying a dividend long enough to demonstrate its resilience across economic cycles. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than BHB Brauholding Bayern-Mitte out there.
Now, if you want to look closer, it would be worth checking out our free research on BHB Brauholding Bayern-Mitte management tenure, salary, and performance.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.