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Officially, you are participating B&M European Marketing (LSE:BME) comes with a dividend yield of 8%. But investors may be in line for more of this going forward.
The 8% figure does not include the company’s special dividends, which have been common. And while they are under pressure right now, investors should look ahead.
Assignments and assignments
Over the past five years, B&M has distributed 77.3p in ordinary shares, almost half the current share price. But that’s only part of the story.
The company also returned £1 in special dividends, which are paid each year in January or February. And this has been a major source of income for shareholders.
Over the past 12 months, the company has returned a total of 28.2p to investors. Of that, 13.2p was ordinary profit and 15p was special profit.
At today’s rates, that’s a 17% dividend yield. That’s a big potential return, but investors need to pay attention to a few things when it comes to the stock going forward.
Trouble ahead
B&M is expected to make an announcement about its upcoming special offer in the next few days. But investors probably shouldn’t hold their breath on the news.
The company has cut its special dividend in half from 2022, from 25p down to 15p. This has been due to difficult trading conditions, but the last 12 months have not been better.
Like-for-like sales growth has been weak and rising costs have been putting pressure on margins, causing a decline in profits. And recently there has been an even bigger problem.
In October, the company reported a £7m accounting error relating to its overseas transport costs. And even so, special benefits seem very unlikely to me.
Is the stock still cheap?
Even without a special dividend, investors may think that an 8% yield from regular distributions is enough to make the stock interesting. But that seems too risky right now.
B&M has ordered an independent investigation into the accounting irregularities. This is not normal – what Vistry again WH Smith he did after the discovery of the same.
The problem is, it’s almost impossible to know what this will bring. And without knowing what this might bring, it is impossible to evaluate the stock accurately from an investment perspective.
That may change in the future when full details become clear. But investing based on the expectation of a return on the past few years’ profits seems too risky to me.
Over the past few years, B&M shares have been a poor source of returns for investors. Profits fell on weak trading results, but there were reasons for optimism.
Accounting irregularities, however, make things look very different. With that hanging over the business, investing right now looks like speculation.
Shares from the past 12 months would mean a 17% yield at today’s prices. That’s a big return, but I think there are better opportunities available.
