Beacon Lighting Group (ASX:BLX) Will Pay A Smaller Dividend Than Last Year

Stock Analysis

Beacon Lighting Group Limited's (ASX:BLX) dividend is being reduced from last year's payment covering the same period to A$0.04 on the 22nd of September. This means that the dividend yield is 4.5%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for Beacon Lighting Group

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Beacon Lighting Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 3.5% over the next year. If the dividend continues on this path, the payout ratio could be 56% by next year, which we think can be pretty sustainable going forward.

Looking back, Beacon Lighting Group's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of A$0.014 in 2014 to the most recent total annual payment of A$0.083. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Beacon Lighting Group has grown earnings per share at 10% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Beacon Lighting Group has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. For example, we've picked out 1 warning sign for Beacon Lighting Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Find out whether Beacon Lighting Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Beacon Lighting Group Limited retails lighting products in Australia and internationally.

Flawless balance sheet and fair value.