Bureau Veritas (EPA:BVI) Has Announced That It Will Be Increasing Its Dividend To €0.83

Bureau Veritas SA (EPA:BVI) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of July to €0.83. This takes the annual payment to 3.0% of the current stock price, which is about average for the industry.

View our latest analysis for Bureau Veritas

Bureau Veritas' Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Bureau Veritas' dividend made up quite a large proportion of earnings but only 57% 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.

The next year is set to see EPS grow by 32.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 58% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was €0.48, compared to the most recent full-year payment of €0.83. This works out to be a compound annual growth rate (CAGR) of approximately 5.6% 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.

Bureau Veritas Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Bureau Veritas has impressed us by growing EPS at 7.8% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Bureau Veritas that investors should know about before committing capital to this stock. Is Bureau Veritas not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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