Construcciones y Auxiliar de Ferrocarriles' (BME:CAF) Dividend Will Be Reduced To €0.32

Construcciones y Auxiliar de Ferrocarriles, S.A. (BME:CAF) is reducing its dividend to €0.32 on the 13th of January. This means that the dividend yield is 0.9%, which is a bit low when comparing to other companies in the industry.

See our latest analysis for Construcciones y Auxiliar de Ferrocarriles

Construcciones y Auxiliar de Ferrocarriles' Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. However, Construcciones y Auxiliar de Ferrocarriles' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 10.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was €1.05, compared to the most recent full-year payment of €0.40. The dividend has shrunk at around 9.2% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Construcciones y Auxiliar de Ferrocarriles has grown earnings per share at 29% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Construcciones y Auxiliar de Ferrocarriles Looks Like A Great Dividend Stock

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Construcciones y Auxiliar de Ferrocarriles does. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Construcciones y Auxiliar de Ferrocarriles that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.