Recordati Industria Chimica e Farmaceutica (BIT:REC) Will Pay A Larger Dividend Than Last Year At €0.55

The board of Recordati Industria Chimica e Farmaceutica S.p.A. (BIT:REC) has announced that the dividend on 23rd of November will be increased to €0.55, which will be 3.8% higher than last year's payment of €0.53 which covered the same period. The payment will take the dividend yield to 2.6%, which is in line with the average for the industry.

Check out the opportunities and risks within the XX Pharmaceuticals industry.

Recordati Industria Chimica e Farmaceutica's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Recordati Industria Chimica e Farmaceutica was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 45.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 dividend has gone from an annual total of €0.30 in 2012 to the most recent total annual payment of €1.10. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. 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.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 3.9% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Recordati Industria Chimica e Farmaceutica has the option to increase the payout ratio to return more cash to shareholders.

Recordati Industria Chimica e Farmaceutica Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. 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.

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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.