Bouygues' (EPA:EN) Shareholders Will Receive A Bigger Dividend Than Last Year

Bouygues SA's (EPA:EN) dividend will be increasing from last year's payment of the same period to €2.00 on 7th of May. This will take the dividend yield to an attractive 5.7%, providing a nice boost to shareholder returns.

Check out our latest analysis for Bouygues

Bouygues' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Bouygues was paying out 71% of earnings, but a comparatively small 28% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 50.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.

Bouygues Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of €1.60 in 2015 to the most recent total annual payment of €2.00. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Bouygues has seen earnings per share falling at 2.4% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Bouygues that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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