Recordati Industria Chimica e Farmaceutica (BIT:REC) Is Increasing Its Dividend To €0.67

The board of Recordati Industria Chimica e Farmaceutica S.p.A. (BIT:REC) has announced that it will be increasing its dividend by 6.3% on the 21st of May to €0.67, up from last year's comparable payment of €0.63. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.

The end of cancer? These 15 emerging AI stocks are developing tech that will allow early identification of life changing diseases like cancer and Alzheimer's.

Recordati Industria Chimica e Farmaceutica's Payment Could Potentially Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Recordati Industria Chimica e Farmaceutica's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 31.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range.

See our latest analysis for Recordati Industria Chimica e Farmaceutica

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. The annual payment during the last 10 years was €0.37 in 2015, and the most recent fiscal year payment was €1.23. This means that it has been growing its distributions at 13% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Recordati Industria Chimica e Farmaceutica May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 2.5% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 2.5% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Recordati Industria Chimica e Farmaceutica Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Recordati Industria Chimica e Farmaceutica that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.