B&M European Value Retail (LON:BME) Has Announced That Its Dividend Will Be Reduced To £0.096

B&M European Value Retail S.A.'s (LON:BME) dividend is being reduced from last year's payment covering the same period to £0.096 on the 4th of August. The dividend yield of 6.2% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for B&M European Value Retail

B&M European Value Retail Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, B&M European Value Retail's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Earnings per share is forecast to rise by 24.7% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 96% over the next year.

B&M European Value Retail's Dividend Has Lacked Consistency

It's comforting to see that B&M European Value Retail 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 annual payment during the last 9 years was £0.018 in 2014, and the most recent fiscal year payment was £0.346. This works out to be a compound annual growth rate (CAGR) of approximately 39% a year over that time. B&M European Value Retail has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that B&M European Value Retail has been growing its earnings per share at 13% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

B&M European Value Retail Looks Like A Great Dividend Stock

In general, we don't like to see the dividend being cut, especially when the company has such high potential like B&M European Value Retail does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for B&M European Value Retail that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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