Pernod Ricard's (EPA:RI) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Pernod Ricard SA (EPA:RI) has announced that it will be paying its dividend of €2.64 on the 28th of November, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.8%, which is fairly typical for the industry.

See our latest analysis for Pernod Ricard

Pernod Ricard's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last dividend was quite comfortably covered by Pernod Ricard's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

The next year is set to see EPS grow by 22.0%. 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.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from €1.65 total annually to €4.70. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See Pernod Ricard's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Pernod Ricard has seen EPS rising for the last five years, at 8.4% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Pernod Ricard is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Pernod Ricard (1 is potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.