Cembre (BIT:CMB) Will Pay A Larger Dividend Than Last Year At €1.80

Cembre S.p.A. (BIT:CMB) will increase its dividend from last year's comparable payment on the 15th of May to €1.80. This makes the dividend yield 4.2%, which is above the industry average.

See 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. Prior to this announcement, Cembre's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 100% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 24.8% over the next year. If the dividend continues on this path, the payout ratio could be 68% by next year, which we think can be pretty sustainable going forward.

Cembre Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was €0.26, compared to the most recent full-year payment of €1.80. This means that it has been growing its distributions at 21% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

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. Cembre has seen EPS rising for the last five years, at 12% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Cembre will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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 1 warning sign for Cembre that you should be aware of before investing. Is Cembre 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.