Burkhalter Holding (VTX:BRKN) Is Increasing Its Dividend To CHF3.80

The board of Burkhalter Holding AG (VTX:BRKN) has announced that it will be increasing its dividend on the 7th of June to CHF3.80. This will take the annual payment from 5.0% to 5.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Burkhalter Holding

Burkhalter Holding's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 95% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 5.4%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was CHF3.20, compared to the most recent full-year payment of CHF3.80. This means that it has been growing its distributions at 1.7% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Burkhalter Holding's earnings per share has shrunk at approximately 8.1% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Burkhalter Holding's Dividend Doesn't Look Great

In conclusion, we have some concerns about this dividend, even though it being raised is good. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 1 warning sign for Burkhalter Holding that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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