Could investors bag a 17% dividend yield with shares in this UK retailer?

Officially, shares in B&M European Value Retail (LSE:BME) come with an 8% dividend yield. But investors could potentially be in line for much more than this going forward.

The 8% figure doesn’t include the firm’s special dividends, which have been pretty regular. And while they’re under pressure at the moment, investors should look further ahead.

Dividends and dividends

Over the last five years, B&M has distributed 77.3p in ordinary dividends, which is almost half the current share price. But that’s only part of the story. 

The firm has also returned £1 in special dividends, which have been paid each year in January or February. And these have been a huge source of passive income for shareholders.

Over the last 12 months, the company has returned a total 28.2p in cash to investors. Of that, 13.2p has been the regular dividend and 15p has been a special dividend.

At today’s prices, that’s a 17% dividend yield. That’s a huge 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 set to make an announcement on its upcoming special dividend in the next few days. But investors probably shouldn’t hold their breath on the news. 

The company has cut its special dividend twice since 2022, from 25p down to 15p. This has been due to difficult trading conditions, but the last 12 months haven’t been better.

Like-for-like sales growth has been weak and rising costs have been putting pressure on margins, causing profits to fall. And there’s recently been an even bigger issue.

In October, the firm reported a £7m accounting error to do with its overseas freight costs. And while that’s the case, special dividends look extremely unlikely to me. 

Is the stock still cheap?

Even without a special dividend, investors might well think that an 8% yield from the ordinary distribution is enough to make the stock interesting. But that looks very risky right now.

B&M has organised an independent investigation into its accounting after the irregularity. This isn’t unusual – it’s what Vistry and WH Smith did after similar discoveries.

The trouble is, it’s nearly impossible to know what this will bring. And without knowing what this might bring, it’s impossible to assess the stock accurately from an investment perspective.

That might change in the future when the full details become clear. But investing based on an expectation of a return to the dividends of the last few years looks very risky to me.

Extraordinary dividends

Over the last few years, B&M shares have been a terrific source of dividends for investors. The dividend has fallen with weak trading results, but there have been reasons for optimism. 

An accounting irregularity, however, makes things look very different. With that hanging over the business, investing right now looks much more like guesswork.

The dividends from the last 12 months would imply a 17% yield at today’s prices. That’s a huge potential return, but I think there are much better opportunities available.

The post Could investors bag a 17% dividend yield with shares in this UK retailer? appeared first on The Motley Fool UK.

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Stephen Wright has positions in Vistry Group Plc and WH Smith. The Motley Fool UK has recommended B&M European Value, Vistry Group Plc, and WH Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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