FLSmidth (CPH:FLS) Is Paying Out A Larger Dividend Than Last Year

FLSmidth & Co. A/S (CPH:FLS) will increase its dividend from last year's comparable payment on the 15th of April to DKK4.00. Even though the dividend went up, the yield is still quite low at only 1.3%.

Check out our latest analysis for FLSmidth

FLSmidth's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, FLSmidth was paying a whopping 183% as a dividend, but this only made up 33% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 147.9% over the next year. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was DKK2.00 in 2014, and the most recent fiscal year payment was DKK4.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that FLSmidth's earnings per share has fallen at approximately 6.2% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

FLSmidth's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While FLSmidth is earning enough to cover the payments, the cash flows are lacking. We don't think FLSmidth is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 FLSmidth that you should be aware of before investing. Is FLSmidth not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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