Repsol (BME:REP) Is Increasing Its Dividend To €0.405

Repsol, S.A.'s (BME:REP) dividend will be increasing from last year's payment of the same period to €0.405 on 8th of July. Based on this payment, the dividend yield for the company will be 6.8%, which is fairly typical for the industry.

Check out our latest analysis for Repsol

Repsol's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. But before making this announcement, Repsol's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 80% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

The next year is set to see EPS grow by 24.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was €0.962 in 2014, and the most recent fiscal year payment was €1.00. Dividend payments have been growing, but very slowly over the period. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Repsol has impressed us by growing EPS at 15% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Repsol is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Repsol has 2 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection 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.