Elmos Semiconductor (ETR:ELG) Has Announced That It Will Be Increasing Its Dividend To €0.85

Elmos Semiconductor SE's (ETR:ELG) dividend will be increasing from last year's payment of the same period to €0.85 on 21st of May. This takes the annual payment to 1.0% of the current stock price, which is about average for the industry.

View our latest analysis for Elmos Semiconductor

Elmos Semiconductor's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Elmos Semiconductor is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 14.8%. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.

Elmos Semiconductor Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was €0.25 in 2014, and the most recent fiscal year payment was €0.85. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Elmos Semiconductor has impressed us by growing EPS at 29% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Elmos Semiconductor's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Elmos Semiconductor is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Elmos Semiconductor that you should be aware of before investing. 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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