Is Brixmor Property Group Inc. (NYSE:BRX) a good dividend stock? How would you know? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
In this case, Brixmor Property Group likely looks attractive to dividend investors, given its 6.2% dividend yield and five-year payment history. It sure looks interesting on these metrics – but there’s always more to the story . The company also bought back stock during the year, equivalent to approximately 1.6% of the company’s market capitalisation at the time. There are a few simple ways to reduce the risks of buying Brixmor Property Group for its dividend, and we’ll go through these below.
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Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. Looking at the data, we can see that 61% of Brixmor Property Group’s profits were paid out as dividends in the last 12 months. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business – which could be good or bad.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. The company paid out 65% of its free cash flow, which is not bad per se, but does start to limit the amount of cash Brixmor Property Group has available to meet other needs. It’s positive to see that Brixmor Property Group’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Is Brixmor Property Group’s Balance Sheet Risky?
As Brixmor Property Group has a meaningful amount of debt, we need to check its balance sheet to see if the company might have debt risks. A rough way to check this is with these two simple ratios: a) net debt divided by EBITDA (earnings before interest, tax, depreciation and amortisation), and b) net interest cover. Net debt to EBITDA is a measure of a company’s total debt. Net interest cover measures the ability to meet interest payments on debt. Essentially we check that a) a company does not have too much debt, and b) that it can afford to pay the interest. Brixmor Property Group has net debt of 6.53 times its earnings before interest, tax, depreciation and amortisation (EBITDA) which implies meaningful risk if interest rates rise of earnings decline.
Net interest cover can be calculated by dividing earnings before interest and tax (EBIT) by the company’s net interest expense. With EBIT of 2.18 times its interest expense, Brixmor Property Group’s interest cover is starting to look a bit thin. High debt and weak interest cover are not a great combo, and we would be cautious of relying on this company’s dividend while these metrics persist.
We update our data on Brixmor Property Group every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
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. Brixmor Property Group has been paying a dividend for the past five years. During the past five-year period, the first annual payment was US$0.80 in 2014, compared to US$1.12 last year. This works out to be a compound annual growth rate (CAGR) of approximately 7.0% a year over that time.
The dividend has been growing at a reasonable rate, which we like. We’re conscious though that one of the best ways to detect a multi-decade consistent dividend payer, is to watch a company pay dividends for 20 years – a distinction Brixmor Property Group has not achieved yet.
Dividend Growth Potential
The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. It’s good to see Brixmor Property Group has been growing its earnings per share at 34% a year over the past 5 years. With recent, rapid earnings per share growth and a payout ratio of 61%, this business looks like an interesting prospect if earnings are reinvested effectively.
Conclusion
To summarise, shareholders should always check that Brixmor Property Group’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Brixmor Property Group’s is paying out more than half its income as dividends, but at least the dividend is covered both by reported earnings and cashflow. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we’d like. In sum, we find it hard to get excited about Brixmor Property 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.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 7 Brixmor Property Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.