Miquel y Costas & Miquel (BME:MCM) Is Increasing Its Dividend To €0.0846

The board of Miquel y Costas & Miquel, S.A. (BME:MCM) has announced that it will be paying its dividend of €0.0846 on the 19th of October, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 3.9%.

Check out our latest analysis for Miquel y Costas & Miquel

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

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Miquel y Costas & Miquel's dividend was only 44% of earnings, however it was paying out 249% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share could rise by 2.6% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of €0.103 in 2013 to the most recent total annual payment of €0.437. 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.

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. Earnings per share has been crawling upwards at 2.6% per year. Miquel y Costas & Miquel is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Miquel y Costas & Miquel's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Miquel y Costas & Miquel's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Miquel y Costas & Miquel that investors should take into consideration. 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.