Bowler Metcalf (JSE:BCF) Is Increasing Its Dividend To R0.32

By
Simply Wall St
Published
October 12, 2021
JSE:BCF
Source: Shutterstock

Bowler Metcalf Limited (JSE:BCF) will increase its dividend on the 25th of October to R0.32. This will take the annual payment from 5.0% to 5.0% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Bowler Metcalf

Bowler Metcalf's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Bowler Metcalf's dividend was only 40% of earnings, however it was paying out 96% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

If the trend of the last few years continues, EPS will grow by 7.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
JSE:BCF Historic Dividend October 13th 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was R0.31, compared to the most recent full-year payment of R0.51. This means that it has been growing its distributions at 5.1% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

We Could See Bowler Metcalf's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Bowler Metcalf has grown earnings per share at 7.5% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Bowler Metcalf will make a great income stock. While Bowler Metcalf is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Bowler Metcalf that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.