Vidrala (BME:VID) Is Increasing Its Dividend To €0.717

Vidrala, S.A. (BME:VID) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of February to €0.717. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

Check out our latest analysis for Vidrala

Vidrala's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Vidrala's dividend was only 31% of earnings, however it was paying out 256% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to rise by 64.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% by next year, which is in a pretty sustainable range.

Vidrala Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from €0.405 total annually to €1.19. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Vidrala Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Vidrala has grown earnings per share at 9.1% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Vidrala's prospects of growing its dividend payments in the future.

Our Thoughts On Vidrala's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Vidrala's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Vidrala is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Vidrala that investors need to be conscious of moving forward. 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.