Grendene (BVMF:GRND3) Has Affirmed Its Dividend Of R$0.079

The board of Grendene S.A. (BVMF:GRND3) has announced that it will pay a dividend on the 28th of December, with investors receiving R$0.079 per share. This makes the dividend yield 3.3%, which will augment investor returns quite nicely.

View our latest analysis for Grendene

Grendene's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite comfortably covered by Grendene's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 86% indicates it is more focused on returning cash to shareholders than growing the business.

EPS is set to fall by 2.1% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 42%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was R$0.24, compared to the most recent full-year payment of R$0.44. This means that it has been growing its distributions at 6.1% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Grendene has seen earnings per share falling at 2.1% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Grendene (1 is concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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