Alupar Investimento's (BVMF:ALUP11) Upcoming Dividend Will Be Larger Than Last Year's

Alupar Investimento S.A.'s (BVMF:ALUP11) dividend will be increasing from last year's payment of the same period to R$1.44 on 17th of July. Despite this raise, the dividend yield of 5.3% is only a modest boost to shareholder returns.

View our latest analysis for Alupar Investimento

Alupar Investimento Doesn't Earn Enough To Cover Its Payments

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Alupar Investimento was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 74.8% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.

Alupar Investimento's Dividend Has Lacked Consistency

Looking back, Alupar Investimento's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 9 years was R$0.873 in 2014, and the most recent fiscal year payment was R$1.44. This works out to be a compound annual growth rate (CAGR) of approximately 5.7% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Alupar Investimento might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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. Alupar Investimento has seen EPS rising for the last five years, at 22% per annum. Alupar Investimento is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like Alupar Investimento's Dividend

Overall, a dividend increase is always good, and we think that Alupar Investimento is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Alupar Investimento (1 can't be ignored!) 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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