Quiñenco SA's (SNSE:QUINENCO) dividend will be increasing to CL$170 on 2nd of May. This will take the annual payment from 7.0% to 14% of the stock price, which is above what most companies in the industry pay.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Quiñenco's stock price has increased by 32% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Quiñenco's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. However, Quiñenco's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
If the trend of the last few years continues, EPS will grow by 63.5% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from CL$127 in 2012 to the most recent annual payment of CL$171. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Quiñenco has impressed us by growing EPS at 63% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like Quiñenco's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Quiñenco that investors should take into consideration. Is Quiñenco not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Valuation is complex, but we're helping make it simple.
Find out whether Quiñenco is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.