Stock Analysis

Three Days Left To Buy Bowler Metcalf Limited (JSE:BCF) Before The Ex-Dividend Date

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Readers hoping to buy Bowler Metcalf Limited (JSE:BCF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Bowler Metcalf's shares before the 22nd of March in order to be eligible for the dividend, which will be paid on the 27th of March.

The company's next dividend payment will be R0.16 per share. Last year, in total, the company distributed R0.43 to shareholders. Based on the last year's worth of payments, Bowler Metcalf stock has a trailing yield of around 4.6% on the current share price of ZAR9.4. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Bowler Metcalf can afford its dividend, and if the dividend could grow.

View our latest analysis for Bowler Metcalf

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Bowler Metcalf paid out a comfortable 41% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 294% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how Bowler Metcalf intends to continue funding this dividend, or if it could be forced to cut the payment.

Bowler Metcalf does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Bowler Metcalf's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Bowler Metcalf's ability to maintain its dividend.

Click here to see how much of its profit Bowler Metcalf paid out over the last 12 months.

JSE:BCF Historic Dividend March 18th 2023

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Bowler Metcalf's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bowler Metcalf has delivered an average of 3.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Should investors buy Bowler Metcalf for the upcoming dividend? Earnings per share have barely grown in this time, and although Bowler Metcalf is paying out a low percentage of its profit, its dividend was not well covered by free cash flow. It's not common to see a company paying out a limited amount of its profits yet a substantially higher percentage of its cash flow, so we'd flag this as a concern. To summarise, Bowler Metcalf looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So if you want to do more digging on Bowler Metcalf, you'll find it worthwhile knowing the risks that this stock faces. To help with this, we've discovered 2 warning signs for Bowler Metcalf that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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