B&M European Value Retail (LON:BME) could be a buy due to the upcoming dividend

B&M European Value Retail SA (LON:BME) will trade ex-dividend in three days. The ex-dividend date is one day before the record date, which is the date on which shareholders must be on the company’s books to receive a dividend. The ex-dividend date is an important date to keep an eye on, as any purchase of the stock on or after it may mean a delayed settlement that will no longer be reflected on the record date. In other words, investors can buy B&M European Value Retail shares before June 27 to be eligible for the dividend, which will be paid on August 2.

The company’s next dividend payment will be GBP0.096 per share, following on from last year’s payout of a total of GBP0.35 to shareholders. Based on last year’s payments, B&M European Value Retail shares are yielding around 7.4% on the current share price of GBP4.69. Dividends make a significant contribution to investment returns for long-term holders, but only if the dividend continues to be paid. So we should always check if dividend payments appear sustainable, and if the company is growing.

View our latest analysis for B&M European Value Retail

If a company pays out more in dividends than it earns, the dividend can become unsustainable – hardly an ideal situation. That’s why it’s good to see B&M European Value Retail paying out a modest 40% of its profits. But cash flows are even more important than profits when assessing a dividend, so we need to check whether the company generated enough cash to afford the payout. Last year, it paid out 24% of its free cash flow as dividends, which is conservatively low.

It’s encouraging to see that the dividend is covered by both profits and cash flow. This generally suggests that the dividend is sustainable as long as earnings don’t fall precipitously.

Click here to see the company’s payout ratio as well as analyst estimates of its future dividends.

Have earnings and dividends increased?

Companies with strong growth prospects tend to make the best dividend payers because it’s easier to increase the dividend when earnings per share are improving. If earnings fall and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, B&M European Value Retail’s earnings per share have grown 13% annually over the past five years. Earnings per share are growing quickly, and the company is keeping more than half of its profits in the business; an attractive combination that could suggest the company is focused on reinvesting to continue growing profits. Fast-growing companies that reinvest heavily are tempting from a dividend perspective, especially since they can often increase the payout ratio later on.

Another important way to gauge a company’s dividend prospects is to measure its historical dividend growth rate. Over the past 10 years, B&M European Value Retail has increased its dividend by an average of about 34% per year. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The conclusion

Is B&M European Value Retail an attractive dividend stock or is it better left on the shelf? B&M European Value Retail has grown its earnings per share while reinvesting in the business. Unfortunately, the company has cut the dividend at least once in the last 10 years, but the conservative payout ratio makes the current dividend seem sustainable. Overall, we think this is an attractive combination that is worth further investigation.

Although B&M European Value Retail looks good from a dividend perspective, it is still worth keeping yourself informed about the risks associated with this stock. As far as investment risks go, We have identified 2 warning signs with B&M European Value Retail and understanding them should be part of your investment process.

In general, we would not recommend simply buying the first dividend stock you see. Here is a curated list of interesting stocks with high dividend numbers.

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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