Savencia's (EPA:SAVE) Dividend Will Be €1.50

The board of Savencia SA (EPA:SAVE) has announced that it will pay a dividend on the 18th of May, with investors receiving €1.50 per share. This payment means the dividend yield will be 2.5%, which is below the average for the industry.

See our latest analysis for Savencia

Savencia's Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Savencia's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 23.0%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 34%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 first annual payment during the last 10 years was €1.20 in 2012, and the most recent fiscal year payment was €1.50. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Savencia's EPS has declined at around 4.2% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Savencia's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Savencia 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. 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 1 warning sign for Savencia that investors should know about before committing capital to this stock. Is Savencia not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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