STEF's (EPA:STF) Upcoming Dividend Will Be Larger Than Last Year's

STEF SA (EPA:STF) has announced that it will be increasing its dividend on the 5th of May to €3.00. This will take the dividend yield from 3.1% to 3.1%, providing a nice boost to shareholder returns.

Check out our latest analysis for STEF

STEF's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, STEF's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 4.3%. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

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. The dividend has gone from €1.25 in 2012 to the most recent annual payment of €3.00. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

STEF May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, STEF has only grown its earnings per share at 4.6% per annum over the past five years. While EPS growth is quite low, STEF has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for STEF that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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