Bunge's (NYSE:BG) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Bunge Limited (NYSE:BG) has announced that it will be paying its dividend of $0.6625 on the 1st of September, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.9%, which is in line with the average for the industry.

See our latest analysis for Bunge

Bunge's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Bunge was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 16.9%. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

Bunge Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $1.08, compared to the most recent full-year payment of $2.65. This works out to be a compound annual growth rate (CAGR) of approximately 9.4% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

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. Bunge has seen EPS rising for the last five years, at 93% per annum. 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.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Bunge will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Bunge is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 Bunge (1 is potentially serious!) that you should be aware of before investing. Is Bunge 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.