The board of Befesa S.A. (ETR:BFSA) has announced that it will pay a dividend of €1.25 per share on the 20th of June. The dividend yield is 3.2% based on this payment, which is a little bit low compared to the other companies in the industry.
Check out our latest analysis for Befesa
Befesa's Earnings Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive. The last payment was quite easily covered by earnings, but it made up 417% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Over the next year, EPS is forecast to expand by 42.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which is in the range that makes us comfortable with the sustainability of the dividend.
Befesa's Dividend Has Lacked Consistency
It's comforting to see that Befesa has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The annual payment during the last 5 years was €0.73 in 2018, and the most recent fiscal year payment was €1.25. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Has Limited Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Befesa's EPS has declined at around 11% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for Befesa (of which 1 is concerning!) you should know about. Is Befesa not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.