Could Beijer Electronics Group AB (publ) (STO:BELE) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company’s dividend doesn’t live up to expectations.
A slim 1.1% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Beijer Electronics Group could have potential. Before you buy any stock for its dividend however, you should always remember Warren Buffett’s two rules: 1) Don’t lose money, and 2) Remember rule #1. We’ll run through some checks below to help with this.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company’s net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 22% of Beijer Electronics Group’s profits were paid out as dividends in the last 12 months. We’d say its dividends are thoroughly covered by earnings.
We also measure dividends paid against a company’s levered free cash flow, to see if enough cash was generated to cover the dividend. Beijer Electronics Group’s cash payout ratio last year was 7.8%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. 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.
While the above analysis focuses on dividends relative to a company’s earnings, we do note Beijer Electronics Group’s strong net cash position, which will let it pay larger dividends for a time, should it choose.
We update our data on Beijer Electronics Group every 24 hours, so you can always get our latest analysis of its financial health, here.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Beijer Electronics Group has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was kr1.33 in 2010, compared to kr0.50 last year. The dividend has shrunk at around 9.3% a year during that period. Beijer Electronics Group’s dividend has been cut sharply at least once, so it hasn’t fallen by 9.3% every year, but this is a decent approximation of the long term change.
When a company’s per-share dividend falls we question if this reflects poorly on either external business conditions, or the company’s capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.
Dividend Growth Potential
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It’s not great to see that Beijer Electronics Group’s have fallen at approximately 6.8% over the past five years. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.
To summarise, shareholders should always check that Beijer Electronics Group’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. It’s great to see that Beijer Electronics Group is paying out a low percentage of its earnings and cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In sum, we find it hard to get excited about Beijer Electronics Group from a dividend perspective. It’s not that we think it’s a bad business; just that there are other companies that perform better on these criteria.
You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Beijer Electronics Group stock.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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. Thank you for reading.