Barry Callebaut's (VTX:BARN) Shareholders Will Receive A Bigger Dividend Than Last Year

Barry Callebaut AG (VTX:BARN) has announced that it will be increasing its dividend from last year's comparable payment on the 10th of January to CHF29.00. Despite this raise, the dividend yield of 2.1% is only a modest boost to shareholder returns.

See our latest analysis for Barry Callebaut

Barry Callebaut's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Barry Callebaut was paying a whopping 176% as a dividend, but this only made up 36% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 27.5%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Barry Callebaut Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of CHF14.50 in 2013 to the most recent total annual payment of CHF29.00. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. However, Barry Callebaut has only grown its earnings per share at 4.6% per annum over the past five years. While growth may be thin on the ground, Barry Callebaut could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Barry Callebaut's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Barry Callebaut's payments are rock solid. While Barry Callebaut is earning enough to cover the payments, the cash flows are lacking. We don't think Barry Callebaut is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Barry Callebaut that you should be aware of before investing. Is Barry Callebaut not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.