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

Construcciones y Auxiliar de Ferrocarriles, S.A. (BME:CAF) has announced it will be reducing its dividend payable on the 13th of January to €0.32. Based on this payment, the dividend yield will be 0.9%, which is lower than the average for the industry.

Check out our latest analysis for Construcciones y Auxiliar de Ferrocarriles

Construcciones y Auxiliar de Ferrocarriles' Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Construcciones y Auxiliar de Ferrocarriles' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 10.9% over the next year. If the dividend continues on this path, the payout ratio could be 12% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was €1.05, compared to the most recent full-year payment of €0.40. Doing the maths, this is a decline of about 9.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. 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. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Construcciones y Auxiliar de Ferrocarriles' Dividend

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. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Construcciones y Auxiliar de Ferrocarriles that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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