Leonteq (VTX:LEON) Is Increasing Its Dividend To CHF3.00

Leonteq AG (VTX:LEON) has announced that it will be increasing its dividend on the 6th of April to CHF3.00. This will take the annual payment from 4.0% to 4.0% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Leonteq

Leonteq's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Leonteq was paying a whopping 106% as a dividend, but this only made up 35% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

EPS is set to fall by 37.1% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 51%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Leonteq's Dividend Has Lacked Consistency

Leonteq has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from CHF0.50 in 2013 to the most recent annual payment of CHF3.00. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Leonteq has grown earnings per share at 51% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Leonteq's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Leonteq (1 is potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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