Bowler Metcalf Limited (JSE: BCF) will increase its dividend on October 25 to R0.32. This will bring the annual payout from 5.0% to 5.0% of the share price, which is higher than what most companies in the industry pay.
Check out our latest review for Bowler Metcalf
Bowler Metcalf Earnings Easily Cover Distributions
If the payments are not sustainable, a high return for a few years will not matter much. Prior to this announcement, Bowler Metcalf’s dividend was only 40% of earnings, but paid 96% of free cash flow. The company could focus more on returning cash to shareholders, but paying such a portion of its cash flow could expose the dividend to a reduction in the future.
If the trend of recent years continues, EPS will increase 7.5% over the next 12 months. If the dividend continues according to recent trends, we estimate that the payout ratio will be 39%, which is within the range that puts us at ease with the sustainability of the dividend.
The company has a long history of dividends, but it doesn’t look good with the cuts of the past. Since 2011, the first annual payment was 0.31 Rand, compared to 0.51 Rand for the most recent full year. This means that he increased his distributions by 5.1% per year during this period. A reasonable rate of dividend growth is good to see, but we are concerned that the dividend history is not as strong as we would like, having been cut at least once.
We could see Bowler Metcalf’s dividend increase
Since the dividend has been reduced in the past, we need to check if the profits are increasing and if this could lead to higher dividends in the future. We are encouraged to see that Bowler Metcalf has increased its earnings per share by 7.5% per year over the past five years. However, the lack of cash flow makes us a little cautious, especially as regards the future of the dividend.
Overall, we still like to see the dividend go up, but we don’t think Bowler Metcalf will make a great income title. While Bowler Metcalf earns enough to cover the payments, the cash flow is lacking. This company is not in the top bracket of income-providing stocks.
Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. For example, we have chosen 2 warning signs for Bowler Metcalf that investors should be aware of before committing capital to this stock. We have also set up a list of global stocks with a solid dividend.
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