Holcim's (VTX:HOLN) Upcoming Dividend Will Be Larger Than Last Year's

The board of Holcim Ltd (VTX:HOLN) has announced that the dividend on 12th of May will be increased to CHF2.20, which will be 10% higher than last year. This makes the dividend yield 4.7%, which is above the industry average.

View our latest analysis for Holcim

Holcim's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Holcim was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 14.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 57% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from CHF1.43 in 2012 to the most recent annual payment of CHF2.00. This implies that the company grew its distributions at a yearly rate of about 3.4% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Holcim has seen EPS rising for the last five years, at 27% per annum. Holcim is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Holcim Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Holcim that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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