Savaria (TSE:SIS) Has Announced A Dividend Of CA$0.0433

The board of Savaria Corporation (TSE:SIS) has announced that it will pay a dividend of CA$0.0433 per share on the 8th of December. The dividend yield will be 3.6% based on this payment which is still above the industry average.

See our latest analysis for Savaria

Savaria'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. Before this announcement, Savaria was paying out 88% of earnings, but a comparatively small 58% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 89.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 58% which brings it into quite a comfortable range.

Savaria Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was CA$0.08, compared to the most recent full-year payment of CA$0.52. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Savaria May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, Savaria's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Slow growth and a high payout ratio could mean that Savaria has maxed out the amount that it has been able to pay to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

We should note that Savaria has issued stock equal to 10% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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 is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Savaria that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.