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BW LPG Limited’s (OB: BWLPG) The dividend will be reduced to 1.48 kr on June 11. However, the 9.8% dividend yield is still a good boost to shareholder returns.
While the dividend yield is important for income investors, it is also important to consider any significant change in the price of the shares, as it will generally outweigh any gains from distributions. Investors will be happy to see that the BWG share price has risen 35% in the past 3 months, which is good for shareholders and may also explain a drop in dividend yield.
See our latest review for BWG
BWG does not earn enough to cover its payments
While it is good to have a high dividend yield, we also need to consider whether the payout is sustainable. The last dividend was fairly easily covered by BWG profits. This means that a large portion of its profits are kept to grow the business.
EPS is expected to decline 29.8% over the next 12 months. If the dividend continues according to recent trends, we estimate that the payout ratio could reach over 200%, which could put the dividend at risk if the company’s earnings do not improve.
BWG dividend lacks consistency
Even in its relatively short history, the company has cut the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. As of 2014, the first annual payment was $ 0.15, compared to the most recent $ 0.84 for a full year. This works out to a compound annual growth rate (CAGR) of around 28% per year during that time. It’s great to see strong growth in dividend payments, but the cuts are of concern as it may indicate that the payment policy is too ambitious.
Dividend growth is questionable
With a relatively volatile dividend, it is even more important to assess whether earnings per share are increasing, which could indicate a growing dividend in the future. Over the past five years, it appears that BWG’s EPS has fallen by around 7.0% per year. Falling profits will inevitably lead the company to pay a lower dividend based on falling profits.
In summary
Overall, it’s not great to see that the dividend has been reduced, but that could be because the payouts were a bit high before. Payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flow, it could prove to be reliable in the short term. This company is not in the top income bracket providing shares.
Firms with a stable dividend policy will likely benefit from greater investor interest than those with a more inconsistent approach. However, there are other things for investors to consider when analyzing the performance of stocks. Just as an example we have encountered 5 warning signs for BWG you need to be aware of that, and one of them is a bit nasty. We have also set up a list of global stocks with a solid dividend.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in the mentioned stocks.
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