Jensen-Group (EBR:JEN) Is Paying Out A Larger Dividend Than Last Year

Jensen-Group NV (EBR:JEN) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of May to €0.525. This makes the dividend yield about the same as the industry average at 2.0%.

View our latest analysis for Jensen-Group

Jensen-Group's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Jensen-Group was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 20.0% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 22%, which is comfortable for the company to continue in the future.

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. The dividend has gone from an annual total of €0.25 in 2014 to the most recent total annual payment of €0.75. This implies that the company grew its distributions at a yearly rate of about 12% 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 Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Jensen-Group has seen EPS rising for the last five years, at 5.7% per annum. Jensen-Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We should note that Jensen-Group has issued stock equal to 24% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. To that end, Jensen-Group has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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