PUMA (ETR:PUM) Has Announced That Its Dividend Will Be Reduced To €0.61

PUMA SE's (ETR:PUM) dividend is being reduced from last year's payment covering the same period to €0.61 on the 26th of May. This means the annual payment is 3.2% of the current stock price, which is above the average for the industry.

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. PUMA's stock price has reduced by 56% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

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PUMA's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, PUMA'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.

The next year is set to see EPS grow by 29.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for PUMA

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of €0.05 in 2015 to the most recent total annual payment of €0.61. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

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. PUMA hasn't seen much change in its earnings per share over the last five years. While growth may be thin on the ground, PUMA could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for PUMA that investors should take into consideration. 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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