Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) Will Pay A Larger Dividend Than Last Year At €4.50

By
Simply Wall St
Published
May 12, 2022
ENXTPA:ML
Source: Shutterstock

Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) will increase its dividend on the 19th of May to €4.50. This takes the annual payment to 3.8% of the current stock price, which is about average for the industry.

Check out our latest analysis for Compagnie Générale des Établissements Michelin Société en commandite par actions

Compagnie Générale des Établissements Michelin Société en commandite par actions' Earnings Easily Cover the Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Compagnie Générale des Établissements Michelin Société en commandite par actions' dividend was comfortably covered by both cash flow and 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 by 18.5% over the next year. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

historic-dividend
ENXTPA:ML Historic Dividend May 12th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was €2.10 in 2012, and the most recent fiscal year payment was €4.50. This means that it has been growing its distributions at 7.9% per annum 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. Compagnie Générale des Établissements Michelin Société en commandite par actions might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 2.3% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 2.3% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Compagnie Générale des Établissements Michelin Société en commandite par actions' Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Compagnie Générale des Établissements Michelin Société en commandite par actions that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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