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B&M European Value Retail S.A. (LON:BME) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy B&M European Value Retail S.A. (LON:BME) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, B&M European Value Retail investors that purchase the stock on or after the 12th of January will not receive the dividend, which will be paid on the 3rd of February.

The company's next dividend payment will be UK£0.20 per share, and in the last 12 months, the company paid a total of UK£0.41 per share. Based on the last year's worth of payments, B&M European Value Retail stock has a trailing yield of around 9.2% on the current share price of £4.5. If you buy this business for its dividend, you should have an idea of whether B&M European Value Retail's dividend is reliable and sustainable. So we need to investigate whether B&M European Value Retail can afford its dividend, and if the dividend could grow.

View our latest analysis for B&M European Value Retail

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. B&M European Value Retail paid out a comfortable 43% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 2.5% of its cash flow last year.

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It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see B&M European Value Retail has grown its earnings rapidly, up 22% a year for the past five years. B&M European Value Retail is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. B&M European Value Retail has delivered an average of 48% per year annual increase in its dividend, based on the past eight years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is B&M European Value Retail worth buying for its dividend? B&M European Value Retail has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while B&M European Value Retail has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for B&M European Value Retail and you should be aware of these before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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