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Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Big Yellow Group Plc (LON:BYG) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 20th of June to receive the dividend, which will be paid on the 26th of July.
Big Yellow Group’s upcoming dividend is UK£0.17 a share, following on from the last 12 months, when the company distributed a total of UK£0.33 per share to shareholders. Last year’s total dividend payments show that Big Yellow Group has a trailing yield of 3.2% on the current share price of £10.23. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Big Yellow Group is paying out an acceptable 72% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (72%) of its free cash flow in the past year, which is within an average range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we’re glad to see Big Yellow Group’s earnings per share have risen 13% per annum over the last five years.
Big Yellow Group is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past 9 years, Big Yellow Group has increased its dividend at approximately 27% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Has Big Yellow Group got what it takes to maintain its dividend payments? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we’d also note that Big Yellow Group is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, while it has some positive characteristics, we’re not inclined to race out and buy Big Yellow Group today.
Curious what other investors think of Big Yellow Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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.