Compagnie Financière Richemont's (VTX:CFR) Upcoming Dividend Will Be Larger Than Last Year's

The board of Compagnie Financière Richemont SA (VTX:CFR) has announced that it will be increasing its dividend on the 23rd of September to CHF2.00. This takes the dividend yield from 2.0% to 2.0%, which shareholders will be pleased with.

View our latest analysis for Compagnie Financière Richemont

Compagnie Financière Richemont's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Compagnie Financière Richemont's dividend was comfortably covered by both cash flow and 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 22.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was €0.35, compared to the most recent full-year payment of €1.83. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Compagnie Financière Richemont's EPS has declined at around 5.1% a year. 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. 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.

Our Thoughts On Compagnie Financière Richemont's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Compagnie Financière Richemont'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 don't think Compagnie Financière Richemont is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Compagnie Financière Richemont that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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