Saras (BIT:SRS) Will Pay A Smaller Dividend Than Last Year

Saras S.p.A. (BIT:SRS) has announced that on 22nd of May, it will be paying a dividend of€0.15, which a reduction from last year's comparable dividend. This means the annual payment is 8.4% of the current stock price, which is above the average for the industry.

View our latest analysis for Saras

Saras Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment was quite easily covered by earnings, but it made up 161% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

EPS is set to fall by 72.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 174%, which could put the dividend in jeopardy if the company's earnings don't improve.

Saras' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from €0.17 total annually to €0.15. Doing the maths, this is a decline of about 1.6% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Saras has seen EPS rising for the last five years, at 17% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Saras has 2 warning signs (and 1 which is a bit concerning) 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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