Recordati Industria Chimica e Farmaceutica (BIT:REC) Is Increasing Its Dividend To €0.63

Recordati Industria Chimica e Farmaceutica S.p.A. (BIT:REC) will increase its dividend from last year's comparable payment on the 22nd of May to €0.63. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.

Check out our latest analysis for Recordati Industria Chimica e Farmaceutica

Recordati Industria Chimica e Farmaceutica's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Recordati Industria Chimica e Farmaceutica's dividend was only 63% of earnings, however it was paying out 242% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 38.0% over the next year. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Recordati Industria Chimica e Farmaceutica Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from €0.30 total annually to €1.20. This means that it has been growing its distributions at 15% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 4.3% per annum over the last five years, which admittedly is a bit slow. Growth of 4.3% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Recordati Industria Chimica e Farmaceutica 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 2 warning signs for Recordati Industria Chimica e Farmaceutica that you should be aware of before investing. Is Recordati Industria Chimica e Farmaceutica 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.