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Why It Might Not Make Sense To Buy Bioventix PLC (LON:BVXP) For Its Upcoming Dividend
Bioventix PLC (LON:BVXP) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Bioventix's shares before the 5th of November to receive the dividend, which will be paid on the 20th of November.
The company's next dividend payment will be UK£0.80 per share, on the back of last year when the company paid a total of UK£1.50 to shareholders. Calculating the last year's worth of payments shows that Bioventix has a trailing yield of 7.5% on the current share price of UK£20.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Bioventix has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Bioventix paid out 103% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 99% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
As Bioventix's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Check out our latest analysis for Bioventix
Click here to see how much of its profit Bioventix paid out over the last 12 months.
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. With that in mind, we're encouraged by the steady growth at Bioventix, with earnings per share up 2.4% on average over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Bioventix has increased its dividend at approximately 13% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Bioventix an attractive dividend stock, or better left on the shelf? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. It's not that we think Bioventix is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering Bioventix as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Bioventix has 1 warning sign we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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