B&M European Value Retail (LON:BME) Is Reducing Its Dividend 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 6.4% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for B&M European Value Retail

B&M European Value Retail's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, B&M European Value Retail was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 27.0%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 94% - on the higher side, but we wouldn't necessarily say this is unsustainable.

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

B&M European Value Retail has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of £0.018 in 2015 to the most recent total annual payment of £0.346. This works out to be a compound annual growth rate (CAGR) of approximately 45% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that B&M European Value Retail has grown earnings per share at 13% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

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. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. 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. 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. 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.