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Highlights:
Bellway p.l.c. (LON:BWY) will distribute a dividend of £0.38 per share on January 8, resulting in a dividend yield of 1.6%.
Projected earnings indicate a potential growth of 140.8% next year, suggesting a sustainable payout ratio of 21%.
The company has a history of dividend volatility, having cut its dividend at least once in the past decade, raising concerns about future reliability.
The board of Bellway p.l.c. (LSE:BWY) has announced a dividend payment of £0.38 per share, scheduled for January 8. This distribution brings the dividend yield to 1.6%, providing only a modest enhancement to overall returns for shareholders.
While the dividend yield is an important consideration, assessing the feasibility of current payout levels is equally critical. Prior to this announcement, Bellway had been generating sufficient earnings to support the dividend, but it lacked free cash flow. A deficiency in cash flow could pose challenges for returning capital to shareholders and may place strain on the balance sheet.
Looking ahead, earnings per share (EPS) are anticipated to grow by 140.8% in the next year. If the dividend follows recent trends, the estimated payout ratio will be 21%, a level that indicates comfort regarding the sustainability of the dividend.
Despite the dividend’s consistency over the years, it has faced volatility, including at least one cut in the past decade. The annual total dividend has increased only marginally from £0.52 in 2014 to £0.54 recently, growing at less than 1% annually. This history of fluctuations raises caution, especially given the previous reductions in payouts.
In terms of growth potential, Bellway's earnings per share has declined by 24% annually over the past five years. While upcoming earnings are predicted to improve, the lack of a solid trend in growth makes it challenging to confidently assess future dividend reliability.
Overall, the company’s history of dividend cuts and insufficient cash flow raises questions about the sustainability of its dividend payments. Caution is warranted for those considering reliance on Bellway for dividend income. Furthermore, potential shareholders should be mindful of existing concerns, including a warning sign associated with the company’s financial health.
