Are Dividend Investors Getting More Than They Bargained For With BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s (FRA:BLH) Dividend?

Today we'll take a closer look at BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- (FRA:BLH) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

With BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- yielding 3.4% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. We'd guess that plenty of investors have purchased it for the income. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

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Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. 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. In the last year, BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- paid out 106% of its profit as dividends. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

Consider getting our latest analysis on BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s financial position here.

Dividend Volatility

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. For the purpose of this article, we only scrutinise the last decade of BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was €0.3 in 2010, compared to €0.4 last year. Dividends per share have grown at approximately 4.8% per year over this time.

Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think is seriously impressive.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. In the last five years, BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877-'s earnings per share have shrunk at approximately 2.8% per annum. 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.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're a bit uncomfortable with its high payout ratio. It's not great to see earnings per share shrinking. The dividends have been relatively consistent, but we wonder for how much longer this will be true. To conclude, we've spotted a couple of potential concerns with BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- that may make it less than ideal candidate for dividend investors.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 6 warning signs for BREMER LAGERHAUS-GESELLSCHAFT -Aktiengesellschaft von 1877- that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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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. 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.
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