Vidrala (BME:VID) Is Paying Out A Larger Dividend Than Last Year

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. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.

See our latest analysis for Vidrala

Vidrala's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Vidrala was paying a whopping 256% as a dividend, but this only made up 31% of its overall earnings. 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.

The next year is set to see EPS grow by 71.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 17% by next year, which is in a pretty sustainable range.

Vidrala Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of €0.405 in 2013 to the most recent total annual payment of €1.19. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

We Could See Vidrala's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. Vidrala has impressed us by growing EPS 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.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Vidrala will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Vidrala that investors should know about before committing capital to this stock. Is Vidrala 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.