Here's Why We're Wary Of Buying Braemar's (LON:BMS) For Its Upcoming Dividend
It looks like Braemar Plc (LON:BMS) is about to go ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Braemar investors that purchase the stock on or after the 30th of July will not receive the dividend, which will be paid on the 7th of September.
The company's next dividend payment will be UK£0.045 per share, and in the last 12 months, the company paid a total of UK£0.07 per share. Calculating the last year's worth of payments shows that Braemar has a trailing yield of 3.1% on the current share price of UK£2.23. If you buy this business for its dividend, you should have an idea of whether Braemar's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, Braemar paid out 97% 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. The good news is it paid out just 15% of its free cash flow in the last year.
It's good to see that while Braemar's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
See our latest analysis for Braemar
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Braemar's earnings per share have dropped 8.9% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Braemar's dividend payments per share have declined at 12% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Final Takeaway
Is Braemar an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 97% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Braemar.
With that being said, if you're still considering Braemar as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Braemar has 4 warning signs 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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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.