COFACE (EPA:COFA) Will Pay A Larger Dividend Than Last Year At €1.40

The board of COFACE SA (EPA:COFA) has announced that it will be paying its dividend of €1.40 on the 22nd of May, an increased payment from last year's comparable dividend. This makes the dividend yield 8.6%, which is above the industry average.

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COFACE'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, COFACE's dividend made up quite a large proportion of earnings but only 64% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 4.6% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 92% which is a bit high but can definitely be sustainable.

View our latest analysis for COFACE

COFACE's Dividend Has Lacked Consistency

COFACE has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the dividend has gone from €0.48 total annually to €1.40. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

COFACE's Dividend Might Lack Growth

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. We are encouraged to see that COFACE has grown earnings per share at 12% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think COFACE's payments are rock solid. 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. We don't think COFACE 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, COFACE has 2 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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