BioPharma Credit (LON:BPCR) Has Announced A Dividend Of $0.0175

BioPharma Credit PLC (LON:BPCR) will pay a dividend of $0.0175 on the 23rd of September. This means the annual payment is 7.3% of the current stock price, which is above the average for the industry.

See our latest analysis for BioPharma Credit

BioPharma Credit Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS could expand by 11.8% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 111%, which probably can't continue without starting to put some pressure on the balance sheet.

BioPharma Credit's Dividend Has Lacked Consistency

It's comforting to see that BioPharma Credit has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of $0.04 in 2017 to the most recent total annual payment of $0.07. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

BioPharma Credit Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. BioPharma Credit has impressed us by growing EPS at 12% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means BioPharma Credit has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for BioPharma Credit that investors should know about before committing capital to this stock. Is BioPharma Credit not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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