The Berkeley Group Holdings plc's (LON:BKG) Could Be A Buy For Its Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that The Berkeley Group Holdings plc (LON:BKG) is about to go ex-dividend in just 3 days. You can purchase shares before the 19th of March in order to receive the dividend, which the company will pay on the 31st of March.
The upcoming dividend for Berkeley Group Holdings is UK£4.99 per share, increased from last year's total dividends per share of UK£0.27. If you buy this business for its dividend, you should have an idea of whether Berkeley Group Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Berkeley Group Holdings
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. Berkeley Group Holdings is paying out just 4.9% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 13% of its free cash flow last year.
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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Berkeley Group Holdings's earnings per share have been growing at 13% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Berkeley Group Holdings has delivered an average of 22% per year annual increase in its dividend, based on the past seven years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Final Takeaway
Is Berkeley Group Holdings an attractive dividend stock, or better left on the shelf? Berkeley Group Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past seven years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.
So while Berkeley Group Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 3 warning signs with Berkeley Group Holdings and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.
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