Orell Füssli's (VTX:OFN) Dividend Will Be Increased To CHF3.40

Orell Füssli AG (VTX:OFN) has announced that it will be increasing its dividend on the 17th of May to CHF3.40. This takes the dividend yield from 3.9% to 3.9%, which shareholders will be pleased with.

View our latest analysis for Orell Füssli

Orell Füssli'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, Orell Füssli's dividend made up quite a large proportion of earnings but only 61% 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 8.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 68% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from CHF1.30 in 2012 to the most recent annual payment of CHF3.40. This means that it has been growing its distributions at 10% 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.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Orell Füssli's EPS has declined at around 2.8% 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.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Orell Füssli's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Orell Füssli that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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