Chr. Hansen Holding (CPH:CHR) Is Paying Out A Larger Dividend Than Last Year

Chr. Hansen Holding A/S (CPH:CHR) will increase its dividend from last year's comparable payment on the 28th of November to €7.04. This takes the annual payment to 1.7% of the current stock price, which unfortunately is below what the industry is paying.

Check out the opportunities and risks within the XX Chemicals industry.

Chr. Hansen Holding Is Paying Out More Than It Is Earning

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Chr. Hansen Holding's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next 12 months is set to see EPS grow by 45.0%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was €0.48 in 2012, and the most recent fiscal year payment was €0.946. This implies that the company grew its distributions at a yearly rate of about 7.0% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend's Growth Prospects Are Limited

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. However, Chr. Hansen Holding's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 0.07% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Chr. Hansen Holding that investors should take into consideration. Is Chr. Hansen Holding not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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