Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) Is Paying Out A Larger Dividend Than Last Year

Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of May to €1.35. This takes the annual payment to 3.8% of the current stock price, which is about average for the industry.

See 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 means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 37.3%. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of €0.60 in 2014 to the most recent total annual payment of €1.35. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% 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. 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

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 3.6% per year. The company has been growing at a pretty soft 3.6% 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.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. Taking the debate a bit further, we've identified 2 warning signs for Compagnie Générale des Établissements Michelin Société en commandite par actions that investors need to be conscious of moving forward. Is Compagnie Générale des Établissements Michelin Société en commandite par actions not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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