BGSF (NYSE:BGSF) Has Announced That It Will Be Increasing Its Dividend To US$0.12

BGSF, Inc. (NYSE:BGSF) will increase its dividend on the 23rd of August to US$0.12. This makes the dividend yield 3.2%, which is above the industry average.

View our latest analysis for BGSF

BGSF's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, BGSF's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 39%, which is in a comfortable range for us.

BGSF's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from US$0.60 in 2014 to the most recent annual payment of US$0.40. The dividend has shrunk at around 5.6% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. BGSF's EPS has fallen by approximately 40% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 4 warning signs for BGSF that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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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. 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.
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