Kaufman & Broad (EPA:KOF) Will Pay A Smaller Dividend Than Last Year

Kaufman & Broad S.A. (EPA:KOF) has announced that on 13th of May, it will be paying a dividend of€2.20, which a reduction from last year's comparable dividend. The yield is still above the industry average at 6.4%.

Our free stock report includes 1 warning sign investors should be aware of before investing in Kaufman & Broad. Read for free now.

Kaufman & Broad's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 95% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 15%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

The next year is set to see EPS grow by 37.9%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 70% which brings it into quite a comfortable range.

View our latest analysis for Kaufman & Broad

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of €1.36 in 2015 to the most recent total annual payment of €2.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Kaufman & Broad May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Kaufman & Broad has only grown its earnings per share at 3.9% per annum over the past three years. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. This gives limited room for the company to raise the dividend in the future.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 1 warning sign for Kaufman & Broad that investors need to be conscious of moving forward. 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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