Boiron SA (EPA:BOI) will pay a dividend of €0.95 on the 3rd of June. This means the annual payment will be 2.3% of the current stock price, which is lower than the industry average.
Boiron's Earnings Easily Cover the Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, Boiron is earning enough to cover the payment, but the it makes up 129% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Over the next year, EPS is forecast to expand by 49.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which is in the range that makes us comfortable with the sustainability of the dividend.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was €0.70, compared to the most recent full-year payment of €0.95. This means that it has been growing its distributions at 3.1% per annum over that time. 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.
The Dividend Has Limited Growth Potential
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. Over the past five years, it looks as though Boiron's EPS has declined at around 17% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Boiron is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Boiron that investors should take into consideration. 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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