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B&M European Value Retail's (LON:BME) Shareholders Will Receive A Smaller Dividend Than Last Year

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B&M European Value Retail S.A. (LON:BME) is reducing its dividend to UK£0.12 on the 5th of August. However, the dividend yield of 11% is still a decent boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. B&M European Value Retail's stock price has reduced by 35% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

View our latest analysis for B&M European Value Retail

B&M European Value Retail Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, B&M European Value Retail's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 15.0%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 142%, which could put the dividend under pressure if earnings don't start to improve.


B&M European Value Retail Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2014, the dividend has gone from UK£0.018 to UK£0.17. This means that it has been growing its distributions at 32% per annum over that time. B&M European Value Retail has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. B&M European Value Retail has impressed us by growing EPS at 24% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like B&M European Value Retail's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like B&M European Value Retail does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

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 instance, we've picked out 3 warning signs for B&M European Value Retail that investors should take into consideration. Is B&M European Value Retail not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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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