EXEL Industries (EPA:EXE) Has Announced That Its Dividend Will Be Reduced To €1.15

The board of EXEL Industries SA (EPA:EXE) has announced it will be reducing its dividend by 27% from last year's payment of €1.57 on the 13th of February, with shareholders receiving €1.15. However, the dividend yield of 3.6% is still a decent boost to shareholder returns.

View our latest analysis for EXEL Industries

EXEL Industries' Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, EXEL Industries' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to fall by 15.4%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 22%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of €1.17 in 2014 to the most recent total annual payment of €1.57. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

EXEL Industries 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, EXEL Industries' EPS was effectively flat over the past five years, which could stop the company from paying more every year. While EPS growth is quite low, EXEL Industries has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for EXEL Industries you should be aware of, and 2 of them make us uncomfortable. Is EXEL Industries not quite the opportunity you were looking for? Why not check out our selection of top 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.