ALD S.A.'s (EPA:ALD) dividend will be increasing to €1.08 on 2nd of June. This makes the dividend yield 8.3%, which is above the industry average.
ALD's Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, ALD's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Over the next year, EPS is forecast to fall by 14.0%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 61%, which is comfortable for the company to continue in the future.
ALD Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. The first annual payment during the last 4 years was €0.55 in 2018, and the most recent fiscal year payment was €1.08. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. ALD has seen EPS rising for the last five years, at 13% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
In summary, while it's always good to see the dividend being raised, we don't think ALD's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 identified 3 warning signs for ALD (2 shouldn't be ignored!) that you should be aware of before investing. Is ALD not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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