Bayerische Motoren Werke's (ETR:BMW) Shareholders Will Receive A Smaller Dividend Than Last Year

Bayerische Motoren Werke Aktiengesellschaft (ETR:BMW) has announced that on 19th of May, it will be paying a dividend of€4.30, which a reduction from last year's comparable dividend. Despite the cut, the dividend yield of 6.3% will still be comparable to other companies in the industry.

Our free stock report includes 2 warning signs investors should be aware of before investing in Bayerische Motoren Werke. Read for free now.

Bayerische Motoren Werke's Future Dividend Projections Appear Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Bayerische Motoren Werke's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 20.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% by next year, which is in a pretty sustainable range.

View our latest analysis for Bayerische Motoren Werke

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of €2.90 in 2015 to the most recent total annual payment of €4.3. This implies that the company grew its distributions at a yearly rate of about 4.0% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Bayerische Motoren Werke Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Bayerische Motoren Werke has grown earnings per share at 9.6% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Bayerische Motoren Werke's prospects of growing its dividend payments in the future.

Our Thoughts On Bayerische Motoren Werke's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Bayerische Motoren Werke is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Bayerische Motoren Werke has 2 warning signs (and 1 which is significant) we think you should know about. Is Bayerische Motoren Werke not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.