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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 your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
With Bremer Lagerhaus Gesellschaft von 1877 yielding 3.5% 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. Some simple analysis can reduce the risk of holding Bremer Lagerhaus Gesellschaft von 1877 for its dividend, and we’ll focus on the most important aspects below.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 68% of Bremer Lagerhaus Gesellschaft von 1877’s profits were paid out as dividends in the last 12 months. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.
We also measure dividends paid against a company’s levered free cash flow, to see if enough cash was generated to cover the dividend. Unfortunately, while Bremer Lagerhaus Gesellschaft von 1877 pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it’s not ideal from a dividend perspective.
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 von 1877’s dividend payments. During the past ten-year period, the first annual payment was €0.40 in 2009, compared to €0.45 last year. This works out to be a compound annual growth rate (CAGR) of approximately 1.2% a year over that time.
It’s good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We’re not that enthused by this.
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. Earnings have grown at around 2.5% a year for the past five years, which is better than seeing them shrink! Growth of 2.5% is relatively anaemic growth, which we wonder about. If the company is struggling to grow, perhaps that’s why it elects to pay out more than half of its earnings to shareholders.
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. First, we think Bremer Lagerhaus Gesellschaft von 1877 has an acceptable payout ratio, although its dividend was not well covered by cashflow. Second, earnings growth has been ordinary, and its history of dividend payments is chequered – having cut its dividend at least once in the past. Overall, Bremer Lagerhaus Gesellschaft von 1877 falls short in several key areas here. Unless the investor has strong grounds for an alternative conclusion, we find it hard to get interested in a dividend stock with these characteristics.
You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Bremer Lagerhaus Gesellschaft von 1877 stock.
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 firstname.lastname@example.org. 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.