Sanofi (EPA:SAN) Is Increasing Its Dividend To €3.92

Sanofi (EPA:SAN) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of May to €3.92. This takes the annual payment to 4.2% of the current stock price, which is about average for the industry.

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Sanofi's Projected Earnings Seem Likely To Cover Future Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Sanofi's was paying out quite a large proportion of earnings and 82% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, earnings per share is forecast to rise by 74.8% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 45% which brings it into quite a comfortable range.

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Sanofi Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from €2.85 total annually to €3.92. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Sanofi Might Find It Hard To Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Sanofi has seen EPS rising for the last five years, at 13% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 16 analysts we track are forecasting for Sanofi for free with public analyst estimates for the company. Is Sanofi not quite the opportunity you were looking for? Why not check out our selection of top 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.