Givaudan's (VTX:GIVN) Dividend Will Be Increased To CHF66.00

The board of Givaudan SA (VTX:GIVN) has announced that it will be increasing its dividend on the 30th of March to CHF66.00. This will take the annual payment from 1.8% to 1.8% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Givaudan

Givaudan's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Givaudan was paying out 74% of earnings, but a comparatively small 59% 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.

Looking forward, earnings per share is forecast to rise by 6.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 72%, which is in the range that makes us comfortable with the sustainability of the dividend.

Givaudan 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 first annual payment was CHF21.50, compared to the most recent full-year payment of CHF66.00. This means that it has been growing its distributions at 12% per annum 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.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 4.9% per annum over the last five years, which admittedly is a bit slow. Slow growth and a high payout ratio could mean that Givaudan has maxed out the amount that it has been able to pay to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

Givaudan Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Givaudan is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Givaudan that you should be aware of before investing. Is Givaudan not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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