Compagnie Générale des Établissements Michelin Société en commandite par actions' (EPA:ML) Upcoming Dividend Will Be Larger Than Last Year's

Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) has announced that it will be increasing its dividend on the 19th of May to €4.50. This will take the annual payment from 3.4% to 3.4% of the stock price, which is above what most companies in the industry pay.

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' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Compagnie Générale des Établissements Michelin Société en commandite par actions was quite comfortably earning enough to cover the dividend. 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 19.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from €2.10 to €4.50. This works out to be a compound annual growth rate (CAGR) of approximately 7.9% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Compagnie Générale des Établissements Michelin Société en commandite par actions May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Compagnie Générale des Établissements Michelin Société en commandite par actions has only grown its earnings per share at 2.3% per annum over the past five years. 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, it's great to see the dividend being raised and that it is still in a sustainable range. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Compagnie Générale des Établissements Michelin Société en commandite par actions that investors should know about before committing capital to this stock. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.