Helvetia Holding AG (VTX:HELN) will increase its dividend on the 5th of May to CHF5.90, which is 7.3% higher than last year's payment from the same period of CHF5.50. The payment will take the dividend yield to 4.3%, which is in line with the average for the industry.
Check out our latest analysis for Helvetia Holding
Helvetia Holding's Dividend Is Well Covered By Earnings
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Helvetia Holding was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 16.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.
Helvetia Holding Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was CHF3.40 in 2013, and the most recent fiscal year payment was CHF5.50. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend Has Growth Potential
The company's investors will be pleased to have been receiving dividend income for some time. Helvetia Holding has seen EPS rising for the last five years, at 6.8% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Helvetia Holding that investors should know about before committing capital to this stock. Is Helvetia Holding not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.