Is It Worth Considering Bioventix PLC (LON:BVXP) For Its Upcoming Dividend?

By
Simply Wall St
Published
April 03, 2021
AIM:BVXP
Source: Shutterstock

Bioventix PLC (LON:BVXP) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 8th of April will not receive this dividend, which will be paid on the 23rd of April.

Bioventix's next dividend payment will be UK£0.43 per share. Last year, in total, the company distributed UK£1.41 to shareholders. Looking at the last 12 months of distributions, Bioventix has a trailing yield of approximately 3.4% on its current stock price of £41. If you buy this business for its dividend, you should have an idea of whether Bioventix's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Bioventix

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. Bioventix paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 109% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

While Bioventix's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Bioventix's ability to maintain its dividend.

Click here to see how much of its profit Bioventix paid out over the last 12 months.

historic-dividend
AIM:BVXP Historic Dividend April 4th 2021

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. It's encouraging to see Bioventix has grown its earnings rapidly, up 21% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bioventix has delivered an average of 28% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Bioventix worth buying for its dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 109% of its cashflow, which is uncomfortably high. To summarise, Bioventix looks okay on this analysis, although it doesn't appear a stand-out opportunity.

Want to learn more about Bioventix? Here's a visualisation of its historical rate of revenue and earnings growth.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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