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Is Beacon Lighting Group Limited (ASX:BLX) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
In this case, Beacon Lighting Group likely looks attractive to dividend investors, given its 5.0% dividend yield and five-year payment history. It sure looks interesting on these metrics - but there's always more to the story . There are a few simple ways to reduce the risks of buying Beacon Lighting Group for its dividend, and we'll go through these below.
Explore this interactive chart for our latest analysis on Beacon Lighting Group!
Payout ratios
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 55% of Beacon Lighting Group's profits were paid out as dividends in the last 12 months. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Beacon Lighting Group paid out 54% of its cash flow as dividends last year, which is within a reasonable range for the average corporation. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
We update our data on Beacon Lighting Group every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Beacon Lighting Group has been paying a dividend for the past five years. During the past five-year period, the first annual payment was AU$0.014 in 2014, compared to AU$0.051 last year. Dividends per share have grown at approximately 30% per year over this time.
Beacon Lighting Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.