Savaria (TSE:SIS) Has Announced A Dividend Of CA$0.04

Savaria Corporation's (TSE:SIS) investors are due to receive a payment of CA$0.04 per share on 9th of September. This means the annual payment is 2.3% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Savaria

Savaria's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 97% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 49%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to expand by 39.7%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 83%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was CA$0.084, compared to the most recent full-year payment of CA$0.48. This means that it has been growing its distributions at 19% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Savaria May Have Challenges Growing The Dividend

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. Savaria has impressed us by growing EPS at 8.9% per year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

The company has also been raising capital by issuing stock equal to 26% of shares outstanding in the last 12 months. 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.

Our Thoughts On Savaria's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Savaria's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 4 warning signs for Savaria that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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