Faes Farma's (BME:FAE) Dividend Will Be €0.0332

The board of Faes Farma, S.A. (BME:FAE) has announced that it will pay a dividend on the 13th of January, with investors receiving €0.0332 per share. This will take the dividend yield to an attractive 4.4%, providing a nice boost to shareholder returns.

Check out our latest analysis for Faes Farma

Faes Farma's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Faes Farma was paying a whopping 113% as a dividend, but this only made up 37% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 7.2% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 50%, which is comfortable for the company to continue in the future.

Faes Farma's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from €0.08 total annually to €0.155. This works out to be a compound annual growth rate (CAGR) of approximately 7.6% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Faes Farma might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Faes Farma has impressed us by growing EPS at 7.4% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Faes Farma's prospects of growing its dividend payments in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Faes Farma (1 doesn't sit too well with us!) that you should be aware of before investing. 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.