Ferrocarril del Pacífico's (SNSE:FEPASA) Dividend Is Being Reduced To CLP0.5243

The board of Ferrocarril del Pacífico S.A. (SNSE:FEPASA) has announced that the dividend on 30th of April will be reduced by 5.0% from last year's CLP0.552 to CLP0.5243. The dividend yield of 9.5% is still a nice boost to shareholder returns, despite the cut.

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Ferrocarril del Pacífico's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Ferrocarril del Pacífico'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.

Over the next year, EPS could expand by 15.7% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Ferrocarril del Pacífico

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from CLP0.16 total annually to CLP0.552. This means that it has been growing its distributions at 13% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Ferrocarril del Pacífico has impressed us by growing EPS at 16% per year over the past five years. Ferrocarril del Pacífico definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Ferrocarril del Pacífico's Dividend

Overall, we think that Ferrocarril del Pacífico could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 2 warning signs for Ferrocarril del Pacífico that investors should take into consideration. Is Ferrocarril del Pacífico 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.