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Is Brambles Limited (ASX:BXB) A Smart Choice For Dividend Investors?

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Brambles Limited (ASX:BXB) has been paying a dividend to shareholders. Today it yields 2.7%. Should it have a place in your portfolio? Let’s take a look at Brambles in more detail.

View our latest analysis for Brambles

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Here’s how I find good dividend stocks

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

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  • Does it pay an annual yield higher than 75% of dividend payers?

  • Has it paid dividend every year without dramatically reducing payout in the past?

  • Has dividend per share amount increased over the past?

  • Is its earnings sufficient to payout dividend at the current rate?

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

ASX:BXB Historical Dividend Yield January 18th 19
ASX:BXB Historical Dividend Yield January 18th 19

Does Brambles pass our checks?

Brambles has a trailing twelve-month payout ratio of 44%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect BXB’s payout to increase to 51% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.1%. However, EPS is forecasted to fall to $0.41 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Dividend payments from Brambles have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

In terms of its peers, Brambles generates a yield of 2.7%, which is on the low-side for Commercial Services stocks.

Next Steps:

If you are building an income portfolio, then Brambles is a complicated choice since it has some positive aspects as well as negative ones. 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 recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three essential aspects you should look at:

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

  2. Valuation: What is BXB 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 BXB 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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.