Grendene (BVMF:GRND3) Has Announced A Dividend Of R$0.093

By
Simply Wall St
Published
May 05, 2022
BOVESPA:GRND3
Source: Shutterstock

Grendene S.A. (BVMF:GRND3) will pay a dividend of R$0.093 on the 25th of May. Based on this payment, the dividend yield on the company's stock will be 4.6%, which is an attractive boost to shareholder returns.

See our latest analysis for Grendene

Grendene's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Grendene was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather 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 73%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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BOVESPA:GRND3 Historic Dividend May 5th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was R$0.24 in 2012, and the most recent fiscal year payment was R$0.44. This means that it has been growing its distributions at 6.1% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Grendene's earnings per share has shrunk at approximately 2.1% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Grendene's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Grendene has been making. Overall, we don't think this company has the makings of a good income stock.

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. To that end, Grendene has 2 warning signs (and 1 which can'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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