Saputo (TSE:SAP) Will Pay A Larger Dividend Than Last Year At CA$0.185

The board of Saputo Inc. (TSE:SAP) has announced that it will be paying its dividend of CA$0.185 on the 15th of September, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.5%, which is fairly typical for the industry.

View our latest analysis for Saputo

Saputo's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by Saputo's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 45.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which is in the range that makes us comfortable with the sustainability of the dividend.

Saputo Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from CA$0.42 total annually to CA$0.74. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Is Doubtful

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Saputo's EPS has declined at around 6.0% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Saputo's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. Taking the debate a bit further, we've identified 1 warning sign for Saputo that investors need to be conscious of moving forward. 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.