Construcciones y Auxiliar de Ferrocarriles (BME:CAF) Is Paying Out Less In Dividends Than Last Year

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 annual payment is 0.9% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Construcciones y Auxiliar de Ferrocarriles

Construcciones y Auxiliar de Ferrocarriles' Dividend Is Well Covered By Earnings

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. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 11.8% 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

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was €1.05 in 2011, and the most recent fiscal year payment was €0.40. This works out to be a decline of approximately 9.2% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's encouraging to see Construcciones y Auxiliar de Ferrocarriles has been growing its earnings per share at 29% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Construcciones y Auxiliar de Ferrocarriles Looks Like A Great Dividend Stock

Overall, we think that Construcciones y Auxiliar de Ferrocarriles could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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.

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.

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