ACS Actividades de Construcción y Servicios (BME:ACS) Has Announced That It Will Be Increasing Its Dividend To €0.3896

ACS, Actividades de Construcción y Servicios, S.A. (BME:ACS) will increase its dividend from last year's comparable payment on the 7th of February to €0.3896. This makes the dividend yield 5.6%, which is above the industry average.

See our latest analysis for ACS Actividades de Construcción y Servicios

ACS Actividades de Construcción y Servicios' Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. ACS Actividades de Construcción y Servicios is unprofitable despite paying a dividend, and it is paying out 128% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

Analysts expect the EPS to grow by 43.1% over the next 12 months. This is the right direction to be moving, but it is not enough to achieve profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was €1.15, compared to the most recent full-year payment of €1.58. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. ACS Actividades de Construcción y Servicios' EPS has fallen by approximately 44% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

We're Not Big Fans Of ACS Actividades de Construcción y Servicios' Dividend

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. The dividend doesn't inspire confidence that it will provide solid income in the future.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for ACS Actividades de Construcción y Servicios that you should be aware of before investing. Is ACS Actividades de Construcción y Servicios 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.