Palfinger (VIE:PAL) Will Pay A Larger Dividend Than Last Year At €0.77

The board of Palfinger AG (VIE:PAL) has announced that the dividend on 30th of March will be increased to €0.77, which will be 71% higher than last year. This will take the dividend yield from 1.6% to 2.8%, providing a nice boost to shareholder returns.

View our latest analysis for Palfinger

Palfinger's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Palfinger was earning enough to cover the dividend, but free cash flows weren't positive. 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.

Over the next year, EPS is forecast to expand by 0.8%. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from €0.22 to €0.45. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Palfinger might have put its house in order since then, but we remain cautious.

We Could See Palfinger's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Palfinger has seen EPS rising for the last five years, at 7.1% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Palfinger's prospects of growing its dividend payments in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Palfinger's payments are rock solid. While Palfinger is earning enough to cover the payments, the cash flows are lacking. We don't think Palfinger is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Palfinger has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Palfinger not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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