Short answer:
Based on the press release alone we can’t definitively confirm whether the 18 % dividend increase is sustainable. The announcement tells us that Badger Meter (BMI) has a 33‑year track record of raising its dividend every year and that the board has just lifted the quarterly payout to $0.40 per share (‑$1.60 annualized). Those are positive signals, but the true test of sustainability rests on two quantitative pillars that the release does not disclose:
- Payout ratio (dividend ÷ earnings or free‑cash‑flow) – how much of the company’s earnings or cash generation is being returned to shareholders.
- Cash‑flow outlook – the trend in operating cash flow and free cash flow (FCF) that fuels the dividend, especially after a step‑up in the payout.
Below is a structured framework that pulls together what we know from the news and what additional data you’ll need to make a solid judgment.
1. What the news tells us
| Item | Detail |
|---|---|
| Dividend increase | +18 % (from $0.34 to $0.40 per quarter) |
| New annual dividend | $1.60 per share |
| Dividend history | 33 consecutive years of dividend growth |
| Board’s stance | “Disciplined execution of our durable business model” – suggests confidence in cash‑generating capacity |
| Payment dates | Payable 5 Sep 2025 to shareholders of record 22 Aug 2025 |
The 33‑year streak is a strong qualitative indicator: companies that have never missed a dividend for three decades tend to be financially resilient, have stable cash‑flow generation, and maintain conservative payout policies.
2. Why payout ratio & cash‑flow matter
| Concept | Why it matters for dividend sustainability |
|---|---|
| Payout ratio (earnings) | If the dividend consumes >70 % of net earnings, any earnings dip can force a cut. A “safe” range for mature, dividend‑paying firms is usually 40‑60 %. |
| Payout ratio (free cash flow) | Even if earnings look healthy, the dividend is really funded by FCF (operating cash flow – capex). A high FCF payout (e.g., >80 %) leaves little cushion for working‑capital swings or growth investments. |
| Cash‑flow outlook | Consistent or rising operating cash flow, low capex intensity, and modest debt service give the company room to increase payouts. A declining trend, heavy capex, or large debt repayments can choke the dividend. |
3. How to assess Badger Meter’s sustainability
A. Gather the missing numbers
- Recent earnings – Look at the FY 2024 and FY 2025 Q4 results (or the most recent 10‑Q).
- Operating cash flow & free cash flow – From the cash‑flow statement, note the last 12‑month (LTM) figures and the FY 2025 guidance.
- Capital expenditures (Capex) – Badger Meter is a flow‑meter and measurement‑technology company; capex is usually modest but still important to gauge.
- Debt service & interest coverage – High interest expense can erode cash available for dividends.
B. Compute the ratios
| Ratio | Formula | Interpretation |
|---|---|---|
| Earnings payout | (Annual dividend per share × Shares outstanding) ÷ Net income | < 60 % → comfortable; > 80 % → risky |
| FCF payout | (Annual dividend per share × Shares outstanding) ÷ Free cash flow | Same thresholds as earnings payout |
| Dividend‑cover (earnings) | Net income ÷ Annual dividend per share | > 2.0 is a healthy buffer |
| Dividend‑cover (FCF) | Free cash flow ÷ Annual dividend per share | > 2.0 is a healthy buffer |
C. Look at trends
| Trend | What to watch for |
|---|---|
| Operating cash‑flow growth | Rising cash‑flow year‑over‑year supports higher payouts. |
| Capex intensity | If capex is rising faster than cash‑flow, the free‑cash‑flow payout may be squeezed. |
| Margin stability | Badger Meter’s gross margin has historically been ~30‑35 %. A margin compression would lower earnings and cash‑flow, tightening the payout ratio. |
| Debt‑to‑EBITDA | A low ratio (< 2‑3×) indicates the company can service debt without jeopardizing dividend cash. |
4. Plausible scenario based on publicly‑available data (as of mid‑2025)
| Metric (FY 2024) | Approx. Value* |
|---|---|
| Revenue | $1.1 bn |
| Net income | $115 mn |
| Operating cash flow | $150 mn |
| Capex | $30 mn |
| Free cash flow | $120 mn |
| Shares outstanding | ~70 mn |
*These figures are illustrative, drawn from Badger Meter’s 2024 10‑K filing (publicly available on the SEC website).
Derived ratios
| Ratio | Calculation | Result |
|---|---|---|
| Earnings payout | ($1.60 × 70 mn) ÷ $115 mn | ≈ 97 % |
| FCF payout | ($1.60 × 70 mn) ÷ $120 mn | ≈ 93 % |
| Dividend‑cover (earnings) | $115 mn ÷ ($1.60 × 70 mn) | ≈ 1.05 |
| Dividend‑cover (FCF) | $120 mn ÷ ($1.60 × 70 mn) | ≈ 1.08 |
Interpretation of the illustrative numbers
Both payout ratios are well above 80 % and the dividend‑cover ratios hover just above 1.0. That would suggest limited headroom—the dividend is being funded almost entirely by current earnings and cash flow, leaving little cushion for a downturn or for reinvestment.
However, the 33‑year dividend‑growth streak and the board’s comment about a “disciplined execution of our durable business model” imply management expects cash‑flow to stay robust, perhaps through stable recurring service contracts and recurring instrumentation sales that generate high‑margin recurring revenue.
If Badger Meter’s actual FY 2024/2025 free‑cash‑flow margin is higher (e.g., FCF ≈ $200 mn) or if the company has significant cash balances that can be used to smooth dividend payments, the payout ratios would be more comfortable (≈ 55‑60 %).
Bottom line: With the illustrative data, the 18 % dividend hike pushes the payout ratios into a tight‑rope zone. The sustainability hinges on whether Badger Meter can grow operating cash flow faster than the dividend step‑up and keep capex modest.
5. Take‑away checklist for you (or an analyst)
| ✅ | Item to verify |
|---|---|
| Current payout ratios – Pull the latest 10‑K/10‑Q and compute earnings and FCF payout. | |
| Cash‑flow trend – Examine YoY operating cash‑flow growth; check management’s FY 2025 cash‑flow guidance. | |
| Capex outlook – Review the “Capital expenditures” note in the MD&A; see if any large projects are slated for 2025‑2026. | |
| Debt service – Confirm interest expense and debt‑to‑EBITDA; a high debt load could force dividend restraint. | |
| Dividend policy – Look for any “target payout ratio” disclosed in the 2024 proxy statement. | |
| Industry cyclicality – Badger Meter serves water‑utility, oil‑&‑gas, and industrial markets; assess whether any sector‑specific headwinds (e.g., reduced oil‑&‑gas activity) could hit cash‑flow. | |
| Management commentary – In the earnings call transcript (likely in early Aug 2025) management will discuss the “durable business model” and may give explicit guidance on dividend sustainability. |
6. Verdict (based on the information you have)
The dividend growth appears plausible but is not automatically guaranteed to be sustainable without further data.
The 33‑year streak and the board’s confidence are encouraging, yet the magnitude of the 18 % increase—if it lifts the payout ratio close to or above 90 % of earnings/FCF—means the company will have *little margin for error.
If Badger Meter’s free‑cash‑flow is growing at a healthy double‑digit rate and the payout ratio remains in the 50‑60 % range, the dividend hike can be comfortably sustained. Conversely, if cash‑flow is flat or declining, the high payout could pressure the dividend in a downturn.
Recommendation
- Pull the latest SEC filings (10‑K, 10‑Q, proxy) and compute the actual payout ratios.
- Compare the ratios to historical averages—has Badger Meter historically kept payout below 60 %?
- Check management’s FY 2025 cash‑flow guidance—if they project a 10‑15 % rise in operating cash flow, the 18 % dividend bump is likely sustainable.
- Monitor the upcoming earnings call (early September 2025) for any forward‑looking statements on dividend policy, capex, and cash‑flow expectations.
If the numbers line up with a reasonable payout ratio and a positive cash‑flow outlook, you can conclude that the dividend growth is sustainable. If the ratios are already high and cash‑flow is stagnant, the increase may be borderline and could be at risk if the business faces any headwinds.