Solvay's (EBR:SOLB) Shareholders Will Receive A Bigger Dividend Than Last Year

Solvay SA (EBR:SOLB) will increase its dividend from last year's comparable payment on the 18th of January to €1.08. This will take the annual payment to 3.9% of the stock price, which is above what most companies in the industry pay.

Our analysis indicates that SOLB is potentially undervalued!

Solvay's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Solvay was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 40.1%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 26%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Solvay Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the annual payment back then was €3.07, compared to the most recent full-year payment of €3.85. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Solvay has been growing its earnings per share at 19% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Solvay's prospects of growing its dividend payments in the future.

We Really Like Solvay's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Solvay that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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