Is Briggs & Stratton's (NYQ:BGG) dividend payment about to get cut?

Investors love dividends but when business fortunes fade, these payments to shareholders can end up doing more harm than good. When a company is forgoing profitable investment opportunities just to make its dividend payment, you have to wonder whether or not a cut is around the corner...

This could end up being the case with Briggs & Stratton (NYQ:BGG), which pays a 0.38 rolling dividend.

A quick analysis of the company shows that shareholders ought to be seriously concerned about the sustainability of its dividend...

Is Briggs & Stratton's (NYQ:BGG) dividend cover below 1.0x?

Dividend cover is an important dividend health metric and is calculated by dividing earnings per share by dividend per share (EPS/DPS). The usual rule of thumb is that dividend cover of less than 1.5x earnings can become a concern.

• The rolling dividend cover is based on projected dividends and earnings. Briggs & Stratton's (NYQ:BGG) rolling dividend cover is -6.52
• The historic dividend cover is, of course, based on historic dividends and earnings. Briggs & Stratton's (NYQ:BGG) historic dividend cover is -13.4.

Briggs & Stratton's dividend cover fails both of these tests above, suggesting that the dividend could be at risk. 

Does Briggs & Stratton (NYQ:BGG) have a strong balance sheet?

Another way of thinking about dividend safety is to instead look at a company’s balance sheet strength. A highly leveraged company that struggles to meet its short-term liabilities is more likely to cut its dividend than a well-financed one.

A safe level of net gearing (net debt to equity) on the balance sheet is generally considered to be 50 percent or less. Briggs & Stratton's (NYQ:BGG) net gearing ratio is 231.1% - well above the 50% threshold.

The current ratio (current assets / current liabilities ) gauges a company’s capacity to service short term debts. A current ratio of less than one can be cause for concern. Briggs & Stratton's (NYQ:BGG) current ratio is 0.91 - below our 1.0x cut-off point.

Does Briggs & Stratton have enough cash?

Shareholders could take additional steps to analyse dividend safety by comparing Free Cashflows Per Share (FCF PS) with the Dividend Per Share (DPS). Briggs & Stratton generated -3.58 in FCF PS. This is lower than the dividend payout 0.38 and indicates that the company has not generated enough FCF to sustain dividends over the past twelve months.

Looking at the three simple tests above, It is arguable that Briggs & Stratton's (NYQ:BGG) is struggling to finance its dividend payments. Bearing this in mind, questions must be raised about whether the cash given back to shareholders might be better used elsewhere in the business.

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