Parque Arauco (SNSE:PARAUCO) Will Pay A Larger Dividend Than Last Year At CLP40.00

Parque Arauco S.A. (SNSE:PARAUCO) will increase its dividend from last year's comparable payment on the 15th of May to CLP40.00. Despite this raise, the dividend yield of 1.9% is only a modest boost to shareholder returns.

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 Parque Arauco's stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Parque Arauco's Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, Parque Arauco's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 6.1% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 32%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

See our latest analysis for Parque Arauco

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was CLP27.00, compared to the most recent full-year payment of CLP40.00. This means that it has been growing its distributions at 4.0% per annum over that time. 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 Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Parque Arauco has seen EPS rising for the last five years, at 5.2% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Parque Arauco's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Parque Arauco you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.