Cargotec's (HEL:CGCBV) Dividend Will Be Increased To €1.34

The board of Cargotec Corporation (HEL:CGCBV) has announced that it will be paying its dividend of €1.34 on the 4th of April, an increased payment from last year's comparable dividend. This takes the annual payment to 2.9% of the current stock price, which is about average for the industry.

See our latest analysis for Cargotec

Cargotec's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 365% of what it was earning and 92% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was €1.00, compared to the most recent full-year payment of €1.35. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Cargotec's earnings per share has shrunk at 29% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Cargotec's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Cargotec's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Cargotec is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Cargotec you should be aware of, and 1 of them is a bit unpleasant. Is Cargotec not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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