Stock Analysis

Eurocell's (LON:ECEL) Shareholders Will Receive A Bigger Dividend Than Last Year

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Eurocell plc (LON:ECEL) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of May to £0.072. This takes the dividend yield to 7.9%, which shareholders will be pleased with.

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Eurocell Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Eurocell was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to fall by 50.3%. If the dividend continues along recent trends, we estimate the payout ratio could reach 104%, which could put the dividend in jeopardy if the company's earnings don't improve.

LSE:ECEL Historic Dividend April 5th 2023

Eurocell's Dividend Has Lacked Consistency

It's comforting to see that Eurocell has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was £0.054, compared to the most recent full-year payment of £0.107. This works out to be a compound annual growth rate (CAGR) of approximately 8.9% a year 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. Eurocell might have put its house in order since then, but we remain cautious.

Eurocell 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. Although it's important to note that Eurocell's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Our Thoughts On Eurocell's Dividend

Overall, we always like to see the dividend being raised, but we don't think Eurocell will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

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 example, we've identified 2 warning signs for Eurocell (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Eurocell 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.