Prim, S.A. (BME:PRM) will increase its dividend from last year's comparable payment on the 19th of July to €0.1838. This takes the dividend yield to 4.3%, which shareholders will be pleased with.
View our latest analysis for Prim
Prim's Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Prim's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Looking forward, EPS could fall by 2.1% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 51%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of €0.193 in 2014 to the most recent total annual payment of €0.447. This implies that the company grew its distributions at a yearly rate of about 8.8% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Prim's EPS has declined at around 2.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Prim will make a great income stock. While Prim is earning enough to cover the payments, the cash flows are lacking. 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. For example, we've identified 3 warning signs for Prim (2 don't sit too well with us!) that you should be aware of before investing. Is Prim 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.
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About BME:PRM
Prim
Provides health technology, mobility, and health care products in Spain.
Proven track record with adequate balance sheet.
