Acciona, S.A. (BME:ANA) will increase its dividend on the 7th of July to €3.32. Despite this raise, the dividend yield of 1.8% is only a modest boost to shareholder returns.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Acciona's stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Acciona's Dividend Is Well Covered By Earnings
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Acciona 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.
The next year is set to see EPS grow by 28.2%. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was €3.00, compared to the most recent full-year payment of €4.10. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Acciona'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
In summary, while it's always good to see the dividend being raised, we don't think Acciona's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Acciona 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Acciona (of which 1 shouldn't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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