EMS-CHEMIE HOLDING's (VTX:EMSN) Dividend Will Be Increased To CHF21.00

EMS-CHEMIE HOLDING AG's (VTX:EMSN) dividend will be increasing from last year's payment of the same period to CHF21.00 on 18th of August. This makes the dividend yield 2.8%, which is above the industry average.

Check out our latest analysis for EMS-CHEMIE HOLDING

EMS-CHEMIE HOLDING's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, EMS-CHEMIE HOLDING was paying out quite a large proportion of both earnings and cash flow, with the dividend being 112% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 19.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 78%, which is on the higher side, but certainly still feasible.

EMS-CHEMIE HOLDING Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from CHF7.00 total annually to CHF21.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

EMS-CHEMIE HOLDING May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, EMS-CHEMIE HOLDING has only grown its earnings per share at 4.2% per annum over the past five years. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

Overall, we always like to see the dividend being raised, but we don't think EMS-CHEMIE HOLDING will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think EMS-CHEMIE HOLDING 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for EMS-CHEMIE HOLDING that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.