Tread With Caution Around Burelle SA's (EPA:BUR) 1.9% Dividend Yield

Is Burelle SA (EPA:BUR) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.

A slim 1.9% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Burelle could have potential. That said, the recent jump in the share price will make Burelle's dividend yield look smaller, even though the company prospects could be improving. Some simple analysis can reduce the risk of holding Burelle for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Burelle!

Payout ratios

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. While Burelle pays a dividend, it reported a loss over the last year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

Last year, Burelle paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

Remember, you can always get a snapshot of Burelle's latest financial position, by checking our visualisation of its financial health.

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 Burelle's dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was €0.8 in 2010, compared to €15.0 last year. Dividends per share have grown at approximately 35% per year over this time. The dividends haven't grown at precisely 35% every year, but this is a useful way to average out the historical rate of growth.

Burelle has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, but it might be worth considering if the business has turned a corner.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? It's not great to see that Burelle's have fallen at approximately 5.7% over the past five years. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.

Conclusion

To summarise, shareholders should always check that Burelle's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Burelle's dividend is not well covered by free cash flow, plus it paid a dividend while being unprofitable. Earnings per share are down, and Burelle's dividend has been cut at least once in the past, which is disappointing. Using these criteria, Burelle looks quite suboptimal from a dividend investment perspective.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come accross 4 warning signs for Burelle you should be aware of, and 2 of them are concerning.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding 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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