Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Bloomsbury Publishing Plc (LON:BMY) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Bloomsbury Publishing's shares on or after the 29th of July, you won't be eligible to receive the dividend, when it is paid on the 27th of August.
The company's next dividend payment will be UK£0.17 per share, which looks like a nice increase on last year, when the company distributed a total of UK£0.089 to shareholders. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Bloomsbury Publishing paid out 52% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Bloomsbury Publishing generated enough free cash flow to afford its dividend. Luckily it paid out just 5.0% of its free cash flow last year.
It's positive to see that Bloomsbury Publishing'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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Bloomsbury Publishing earnings per share are up 6.1% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Bloomsbury Publishing has lifted its dividend by approximately 6.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
From a dividend perspective, should investors buy or avoid Bloomsbury Publishing? While earnings per share growth has been modest, Bloomsbury Publishing's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
On that note, you'll want to research what risks Bloomsbury Publishing is facing. To help with this, we've discovered 2 warning signs for Bloomsbury Publishing that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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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