Saputo (TSE:SAP) Is Due To Pay A Dividend Of CA$0.18

Saputo Inc.'s (TSE:SAP) investors are due to receive a payment of CA$0.18 per share on 16th of September. This payment means that the dividend yield will be 2.1%, which is around the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Saputo's stock price has increased by 36% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Saputo

Saputo's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. At the time of the last dividend payment, Saputo was paying out a very large proportion of what it was earning and 147% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 121.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Saputo Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from CA$0.38 total annually to CA$0.72. This means that it has been growing its distributions at 6.6% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Earnings per share has been sinking by 15% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Saputo's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

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. To that end, Saputo has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection 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.