Valeo (EPA:FR) Is Increasing Its Dividend To €0.42

Valeo SE (EPA:FR) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of May to €0.42. This makes the dividend yield 4.9%, which is above the industry average.

Our free stock report includes 4 warning signs investors should be aware of before investing in Valeo. Read for free now.

Valeo's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Valeo's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

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 13%, so there isn't too much pressure on the dividend.

See our latest analysis for Valeo

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from €0.733 total annually to €0.42. Doing the maths, this is a decline of about 5.4% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Valeo's EPS has fallen by approximately 13% per year during 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

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 4 warning signs for Valeo that investors should know about before committing capital to this stock. Is Valeo not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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