How secure is the Bellway dividend?
Housebuilders have been some of the most generous dividend payers in recent years but it is a notoriously cyclical sector and questions persist as to how sustainable these payments to shareholders are.
A reputation as a dependable dividend payer takes years to forge and, once created, is a valuable way for a company to signal its long-term profitability to the market and prospective shareholders. This is why, when it comes to dividend-paying companies such as large cap Homebuilding operator Bellway (LON:BWY), which yields 5.28%, it is useful to check how well these payments are covered by earnings.
Earnings per share divided by dividend per share is called dividend cover - and it’s a great way to quickly gauge a company’s capacity to continue its dividend payments
How to interpret Bellway’s dividend cover
Generally speaking, a dividend cover of below 1.5 times is cause for concern. Above 1.5 is good, but it is when you are getting above two times cover that you see the sign of a high-quality, sustainable dividend payment. Let’s see how Bellway measures up.
The group’s trailing twelve month (TTM) earnings per share are 438p and its TTM dividend per share is 145p. Dividing the former by the latter shows that Bellway has a TTM dividend cover of 3.01.
This is a positive sign for shareholders of Bellway. Other checks you can perform to assess dividend safety include:
- Checking the current ratio is above 1.5 times and preferably above 2x
- Making sure dividend per share is covered by free cash flow per share
- Assessing balance sheet health by looking at the group’s gearing ratio
Income investing: what you need to know
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