FirstFarms (CPH:FFARMS) Is Paying Out A Larger Dividend Than Last Year

FirstFarms A/S (CPH:FFARMS) has announced that it will be increasing its periodic dividend on the 28th of April to DKK0.95, which will be 12% higher than last year's comparable payment amount of DKK0.85. Although the dividend is now higher, the yield is only 1.0%, which is below the industry average.

View our latest analysis for FirstFarms

FirstFarms' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, FirstFarms' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 60.3% over the next 12 months. If the dividend continues on this path, the payout ratio could be 9.9% by next year, which we think can be pretty sustainable going forward.

FirstFarms' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The annual payment during the last 4 years was DKK0.53 in 2019, and the most recent fiscal year payment was DKK0.85. This means that it has been growing its distributions at 13% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. FirstFarms has seen EPS rising for the last five years, at 60% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We should note that FirstFarms has issued stock equal to 20% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On FirstFarms' Dividend

Overall, we always like to see the dividend being raised, but we don't think FirstFarms will make a great income stock. While FirstFarms is earning enough to cover the payments, the cash flows are lacking. We don't think FirstFarms 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for FirstFarms (1 can't be ignored!) that you should be aware of before investing. Is FirstFarms not quite the opportunity you were looking for? Why not check out our selection of top 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.