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A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. B&M European Value Retail S.A. (LON:BME) has recently paid dividends to shareholders, and currently yields 1.9%. Let's dig deeper into whether B&M European Value Retail should have a place in your portfolio.
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is its annual yield among the top 25% of dividend-paying companies?
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has it increased its dividend per share amount over the past?
Does earnings amply cover its dividend payments?
Will it have the ability to keep paying its dividends going forward?
How well does B&M European Value Retail fit our criteria?
The company currently pays out 36% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect BME's payout to increase to 42% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 3.1%. In addition to this, EPS should increase to £0.22. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider B&M European Value Retail as a dividend investment. It has only been consistently paying dividends for 4 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, B&M European Value Retail has a yield of 1.9%, which is on the low-side for Multiline Retail stocks.
After digging a little deeper into B&M European Value Retail's yield, it's easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. I've put together three fundamental aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for BME’s future growth? Take a look at our free research report of analyst consensus for BME’s outlook.
Valuation: What is BME worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BME is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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 firstname.lastname@example.org. 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.