Cencosud (SNSE:CENCOSUD) Is Paying Out Less In Dividends Than Last Year

The board of Cencosud S.A. (SNSE:CENCOSUD) has announced it will be reducing its dividend by 29% from last year's payment of CLP21.00 on the 8th of May, with shareholders receiving CLP15.00. This means that the dividend yield is 0.8%, which is a bit low when comparing to other companies in the industry.

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Cencosud's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Cencosud's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 6.9%, so there isn't too much pressure on the dividend.

See our latest analysis for Cencosud

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was CLP25.2 in 2015, and the most recent fiscal year payment was CLP21.00. This works out to be a decline of approximately 1.8% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Cencosud Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Cencosud has seen EPS rising for the last five years, at 7.2% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, we think that Cencosud could make a reasonable income stock, even though it did cut the dividend this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. For example, we've picked out 2 warning signs for Cencosud that investors should know about before committing capital to this stock. Is Cencosud not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.