Bumitama Agri's (SGX:P8Z) Shareholders Will Receive A Bigger Dividend Than Last Year

Bumitama Agri Ltd. (SGX:P8Z) will increase its dividend from last year's comparable payment on the 16th of September to IDR0.0125. This makes the dividend yield 5.8%, which is above the industry average.

View our latest analysis for Bumitama Agri

Bumitama Agri's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Bumitama Agri's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 41.3% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 0.005%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Bumitama Agri's Dividend Has Lacked Consistency

It's comforting to see that Bumitama Agri 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 dividend has gone from an annual total of IDR92.6 in 2013 to the most recent total annual payment of IDR390.19. This means that it has been growing its distributions at 17% per annum over that time. Bumitama Agri 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Bumitama Agri has grown earnings per share at 23% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Bumitama Agri Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. 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 identified 2 warning signs for Bumitama Agri (1 is a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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