Big 5 Sporting Goods' (NASDAQ:BGFV) Upcoming Dividend Will Be Larger Than Last Year's

By
Simply Wall St
Published
November 17, 2021
NasdaqGS:BGFV
Source: Shutterstock

Big 5 Sporting Goods Corporation's (NASDAQ:BGFV) dividend will be increasing to US$0.25 on 15th of December. This takes the dividend yield from 3.5% to 9.9%, which shareholders will be pleased with.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Big 5 Sporting Goods' stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Big 5 Sporting Goods

Big 5 Sporting Goods' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Big 5 Sporting Goods' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 50.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.

historic-dividend
NasdaqGS:BGFV Historic Dividend November 18th 2021

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2011, the first annual payment was US$0.30, compared to the most recent full-year payment of US$1.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. Big 5 Sporting Goods has seen EPS rising for the last five years, at 50% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Big 5 Sporting Goods 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. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 4 warning signs for Big 5 Sporting Goods that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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