B&M European Value Retail (LON:BME) Is Reducing Its Dividend To UK£0.12
B&M European Value Retail S.A. (LON:BME) has announced it will be reducing its dividend payable on the 5th of August to UK£0.12. The dividend yield of 11% is still a nice boost to shareholder returns, despite the cut.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. B&M European Value Retail's stock price has reduced by 36% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
View our latest analysis for B&M European Value Retail
B&M European Value Retail Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, B&M European Value Retail was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to fall by 14.9%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 142%, which is definitely a bit high to be sustainable going forward.
B&M European Value Retail Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. The first annual payment during the last 8 years was UK£0.018 in 2014, and the most recent fiscal year payment was UK£0.17. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see B&M European Value Retail has been growing its earnings per share at 24% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
B&M European Value Retail Looks Like A Great Dividend Stock
It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that B&M European Value Retail has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 3 warning signs for B&M European Value Retail that investors should know about before committing capital to this stock. Is B&M European Value Retail not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
About LSE:BME
B&M European Value Retail
Operates general merchandise and grocery stores.
Undervalued established dividend payer.