Avolta (VTX:AVOL) Has Announced That It Will Be Increasing Its Dividend To CHF1.00

Avolta AG (VTX:AVOL) will increase its dividend from last year's comparable payment on the 20th of May to CHF1.00. This makes the dividend yield about the same as the industry average at 2.9%.

Our free stock report includes 2 warning signs investors should be aware of before investing in Avolta. Read for free now.

Avolta's Projected Earnings Seem Likely To Cover Future Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 143% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 6.8%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 31%, which is in a comfortable range for us.

View our latest analysis for Avolta

Avolta's Dividend Has Lacked Consistency

Looking back, Avolta's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2018, the annual payment back then was CHF3.75, compared to the most recent full-year payment of CHF1.00. The dividend has fallen 73% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Could Be Constrained

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. It's encouraging to see that Avolta has been growing its earnings per share at 61% a year over the past five years. While EPS is growing rapidly, Avolta paid out a very high 143% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On Avolta's Dividend

Overall, we always like to see the dividend being raised, but we don't think Avolta will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Avolta 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Avolta (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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