Cembre (BIT:CMB) Is Paying Out A Larger Dividend Than Last Year

April 28, 2022
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The board of Cembre S.p.A. (BIT:CMB) has announced that it will be increasing its dividend on the 11th of May to €1.20. This makes the dividend yield 4.4%, which is above the industry average.

Check out our latest analysis for Cembre

Cembre's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Cembre's was paying out quite a large proportion of earnings and 76% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Over the next year, EPS is forecast to expand by 6.0%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 84%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

BIT:CMB Historic Dividend April 28th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from €0.26 to €1.20. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

We Could See Cembre's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Cembre has seen EPS rising for the last five years, at 8.6% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On Cembre's Dividend

Overall, we always like to see the dividend being raised, but we don't think Cembre will make a great income stock. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We don't think Cembre is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Cembre that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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