Elmos Semiconductor's (ETR:ELG) Upcoming Dividend Will Be Larger Than Last Year's

Elmos Semiconductor SE's (ETR:ELG) dividend will be increasing from last year's payment of the same period to €1.00 on 20th of May. This will take the dividend yield to an attractive 1.9%, providing a nice 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. Elmos Semiconductor's stock price has reduced by 31% 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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Elmos Semiconductor's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. 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.

Looking forward, earnings per share is forecast to fall by 6.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 16%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Check out our latest analysis for Elmos Semiconductor

Elmos Semiconductor Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from €0.25 total annually to €1.00. This means that it has been growing its distributions at 15% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

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 seen EPS rising for the last five years, at 51% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Elmos Semiconductor's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Elmos Semiconductor's payments are rock solid. While Elmos Semiconductor is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Elmos Semiconductor (2 shouldn't be ignored!) 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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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.