Helvetia Holding AG (VTX:HELN) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of May to CHF5.90. Based on this payment, the dividend yield for the company will be 4.5%, which is fairly typical for the industry.
Check out our latest analysis for Helvetia Holding
Helvetia Holding's Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Helvetia Holding's earnings easily covered the dividend, but free cash flows were negative. 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 on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.
Helvetia Holding Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of CHF3.40 in 2013 to the most recent total annual payment of CHF5.90. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Helvetia Holding Could Grow Its Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Helvetia Holding has been growing its earnings per share at 6.3% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On Helvetia Holding's Dividend
Overall, we always like to see the dividend being raised, but we don't think Helvetia Holding will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Helvetia Holding that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.