Is Baby Bunting Group Limited (ASX:BBN) A Smart Pick For Income Investors?

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the past 2 years Baby Bunting Group Limited (ASX:BBN) has returned an average of 4.00% per year to investors in the form of dividend payouts. Does Baby Bunting Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View out our latest analysis for Baby Bunting Group

Here’s how I find good dividend stocks

If you are a dividend investor, you should always assess these five key metrics:

• Is it paying an annual yield above 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will the company be able to keep paying dividend based on the future earnings growth?

ASX:BBN Historical Dividend Yield June 25th 18

How well does Baby Bunting Group fit our criteria?

The current trailing twelve-month payout ratio for the stock is 84.96%, which means that the dividend is covered by earnings. However, going forward, analysts expect BBN’s payout to fall to 73.54% of its earnings, which leads to a dividend yield of around 4.93%. However, EPS should increase to A$0.093, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Baby Bunting Group as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Baby Bunting Group has a yield of 4.98%, which is high for Specialty Retail stocks but still below the market’s top dividend payers.

Next Steps:

Taking all the above into account, Baby Bunting Group is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three pertinent aspects you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for BBN’s future growth? Take a look at our free research report of analyst consensus for BBN’s outlook.

2. Valuation: What is BBN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BBN is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.