Barnes Group Inc. (NYSE:B) will pay a dividend of $0.16 on the 8th of December. Based on this payment, the dividend yield on the company's stock will be 2.6%, which is an attractive 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. Barnes Group's stock price has reduced by 36% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
Barnes Group's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Barnes Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Barnes Group Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.40 in 2013, and the most recent fiscal year payment was $0.64. This implies that the company grew its distributions at a yearly rate of about 4.8% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Barnes Group's earnings per share has shrunk at 18% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
Our Thoughts On Barnes Group's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Barnes Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Barnes Group has 4 warning signs (and 1 which is potentially serious) we think you should know about. Is Barnes Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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