Edenred (EPA:EDEN) Will Pay A Larger Dividend Than Last Year At €1.10

Edenred SE's (EPA:EDEN) dividend will be increasing from last year's payment of the same period to €1.10 on 12th of June. This takes the annual payment to 2.3% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Edenred

Edenred's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Edenred's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise by 163.8% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 39% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was €0.83, compared to the most recent full-year payment of €1.10. This implies that the company grew its distributions at a yearly rate of about 2.9% over that duration. 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.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Edenred's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Edenred's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Edenred's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Edenred has 4 warning signs (and 1 which is significant) we think you should know about. 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.