High's (EPA:HCO) Dividend Is Being Reduced To €0.20

High Co. SA (EPA:HCO) is reducing its dividend from last year's comparable payment to €0.20 on the 28th of May. This means the annual payment is 6.1% of the current stock price, which is above the average for the industry.

Check out our latest analysis for High

High's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, High was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 53.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 93%, which is definitely on the higher side.

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. Since 2014, the annual payment back then was €0.075, compared to the most recent full-year payment of €0.20. This means that it has been growing its distributions at 10% per annum 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.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings have grown at around 3.6% a year for the past five years, which isn't massive but still better than seeing them shrink. If High is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On High's Dividend

Even though the dividend was cut this year, we think High has the ability to make consistent payments in the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. To that end, High has 3 warning signs (and 1 which shouldn't be ignored) 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.