Miquel y Costas & Miquel (BME:MCM) Is Increasing Its Dividend To €0.0871

Miquel y Costas & Miquel, S.A. (BME:MCM) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of April to €0.0871. This takes the annual payment to 3.8% of the current stock price, which is about average for the industry.

View our latest analysis for Miquel y Costas & Miquel

Miquel y Costas & Miquel's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Miquel y Costas & Miquel was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Unless the company can turn things around, EPS could fall by 0.6% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 49%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 €0.107 in 2013, and the most recent fiscal year payment was €0.467. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Miquel y Costas & Miquel has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Miquel y Costas & Miquel's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Miquel y Costas & Miquel will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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. As an example, we've identified 2 warning signs for Miquel y Costas & Miquel that you should be aware of before investing. Is Miquel y Costas & Miquel not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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