BMIT Technologies plc (MTSE: BMIT) the dividend is reduced by 15% to €0.025 per share on May 26. The yield is still above the industry average at 5.0%.

See our latest analysis for BMIT Technologies

BMIT Technologies does not earn enough to cover its payments

A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Based on the last payout, BMIT Technologies’ earnings did not cover the dividend, but rather the company was generating enough cash. Since the dividend is a cash outflow, we believe cash is more important than accounting measures of earnings when evaluating the dividend, so this is a mitigating factor.

If the company can’t turn things around, EPS could drop 9.0% over the next year. If the dividend continues on the path it has taken recently, the 12-month payout rate could be 103%, which is certainly a bit high to be sustainable in the future.

BMIT Technologies does not have a long payment history

The dividend hasn’t had any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn’t that long in the grand scheme of things. The dividend has increased from €0.02 in 2020 to the last annual payment of €0.029. This implies that the company has increased its distributions at an annual rate of approximately 21% over this period. The dividend has been rising rapidly, but with such a short payout history, we can’t know for sure if the payout can continue to rise over the long term, so caution may be warranted.

Dividend growth is questionable

Investors might be drawn to the stock because of the quality of its payment history. Let’s not jump to conclusions, because things might not be as good as they seem on the surface. Over the past five years, it appears that BMIT Technologies’ EPS has declined by approximately 9.0% per year. If earnings continue to decline, the company may have to make the difficult choice of cutting the dividend or even stopping it altogether – the opposite of dividend growth.

Dividend could prove unreliable

Overall, the dividend seems to have been a bit high, which is why it has now been reduced. The company generates a lot of cash, which could sustain the dividend for a while, but the balance sheet isn’t great. This company is not in the high end of income providing stocks.

It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic one. Meanwhile, despite the importance of dividend payments, these are not the only factors our readers should be aware of when evaluating a company. Pushing the debate a little further, we have identified 2 warning signs for BMIT Technologies that investors need to be aware of moving forward. If you are a dividend investor, you can also consult our curated list of high yielding dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.