Befesa (ETR:BFSA) Has Announced That Its Dividend Will Be Reduced To €0.73

Befesa S.A. (ETR:BFSA) is reducing its dividend to €0.73 on the 25th of Junewhich is 42% less than last year's comparable payment of €1.25. This means that the annual payment will be 4.2% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Befesa

Befesa's Earnings Easily Cover The 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 107% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Looking forward, earnings per share is forecast to rise by 183.1% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 24% which brings it into quite a comfortable range.

Befesa's Dividend Has Lacked Consistency

Befesa has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2018, the dividend has gone from €0.73 total annually to €1.25. This works out to be a compound annual growth rate (CAGR) of approximately 9.4% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

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. Over the past five years, it looks as though Befesa's EPS has declined at around 10% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Befesa's Dividend Doesn't Look Great

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Befesa you should be aware of, and 2 of them are a bit unpleasant. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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