AGRANA Beteiligungs-Aktiengesellschaft (VIE:AGR) Has Announced That Its Dividend Will Be Reduced To €0.75

AGRANA Beteiligungs-Aktiengesellschaft (VIE:AGR) has announced it will be reducing its dividend payable on the 15th of July to €0.75. The dividend yield of 4.4% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for AGRANA Beteiligungs-Aktiengesellschaft

AGRANA Beteiligungs-Aktiengesellschaft's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 106% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 58%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to grow by 16.0% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 79%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was €0.60, compared to the most recent full-year payment of €0.75. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. AGRANA Beteiligungs-Aktiengesellschaft's EPS has fallen by approximately 13% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

AGRANA Beteiligungs-Aktiengesellschaft's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for AGRANA Beteiligungs-Aktiengesellschaft that investors need to be conscious of moving forward. Is AGRANA Beteiligungs-Aktiengesellschaft not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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