Coloplast (CPH:COLO B) Is Due To Pay A Dividend Of DKK5.00

The board of Coloplast A/S (CPH:COLO B) has announced that it will pay a dividend on the 15th of May, with investors receiving DKK5.00 per share. The dividend yield will be 2.5% based on this payment which is still above the industry average.

View our latest analysis for Coloplast

Coloplast's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Coloplast was paying out quite a large proportion of both earnings and cash flow, with the dividend being 448% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 48.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 72%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Coloplast Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was DKK7.00 in 2014, and the most recent fiscal year payment was DKK21.00. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. 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's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 3.2% a year for the past five years, which isn't massive but still better than seeing them shrink. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Coloplast's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Coloplast's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Coloplast 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Coloplast (of which 2 make us uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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