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Bioventix PLC's (LON:BVXP) periodic dividend will be increasing on the 21st of April to £0.62, with investors receiving 19% more than last year's £0.52. This takes the dividend yield to 3.9%, which shareholders will be pleased with.
View our latest analysis for Bioventix
Bioventix Is Paying Out More Than It Is Earning
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Bioventix was paying out quite a large proportion of both earnings and cash flow, with the dividend being 99% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
Earnings per share is forecast to rise by 1.3% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 117% over the next year.
Bioventix Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.121 in 2013, and the most recent fiscal year payment was £1.52. This works out to be a compound annual growth rate (CAGR) of approximately 29% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Bioventix Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Bioventix has grown earnings per share at 7.5% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Bioventix will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Bioventix that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.