Veolia Environnement's (EPA:VIE) Shareholders Will Receive A Bigger Dividend Than Last Year

Veolia Environnement SA (EPA:VIE) has announced that it will be increasing its dividend from last year's comparable payment on the 14th of May to €1.40. This takes the annual payment to 4.7% of the current stock price, which is about average for the industry.

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Veolia Environnement's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before this announcement, Veolia Environnement was paying out 84% of earnings, but a comparatively small 49% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 49.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 60% which would be quite comfortable going to take the dividend forward.

View our latest analysis for Veolia Environnement

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of €0.70 in 2015 to the most recent total annual payment of €1.40. This means that it has been growing its distributions at 7.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Veolia Environnement might have put its house in order since then, but we remain cautious.

Veolia Environnement May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 4.5% a year for the past five years, which isn't massive but still better than seeing them shrink. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On Veolia Environnement's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Veolia Environnement's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

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. To that end, Veolia Environnement has 2 warning signs (and 1 which is significant) 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.