Yahoo Finance Big 5 Sporting Goods (NASDAQ:BGFV) Could Be A Buy For Its Upcoming Dividend
Readers hoping to buy Big 5 Sporting Goods Corporation (NASDAQ:BGFV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 14th of May to receive the dividend, which will be paid on the 1st of June.
Big 5 Sporting Goods's next dividend payment will be US$1.00 per share, which looks like a nice increase on last year, when the company distributed a total of US$0.60 to shareholders. If you buy this business for its dividend, you should have an idea of whether Big 5 Sporting Goods'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.
See our latest analysis for Big 5 Sporting Goods
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Big 5 Sporting Goods is paying out just 5.2% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 3.9% of its cash flow last year.
It's positive to see that Big 5 Sporting Goods's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Big 5 Sporting Goods 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Big 5 Sporting Goods's earnings have been skyrocketing, up 40% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Big 5 Sporting Goods looks like a promising growth company.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Big 5 Sporting Goods has lifted its dividend by approximately 14% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is Big 5 Sporting Goods an attractive dividend stock, or better left on the shelf? Big 5 Sporting Goods has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 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.
While it's tempting to invest in Big 5 Sporting Goods for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 4 warning signs for Big 5 Sporting Goods and you should be aware of these before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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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