Recordati Industria Chimica e Farmaceutica's (BIT:REC) Dividend Will Be Increased To €0.63

Recordati Industria Chimica e Farmaceutica S.p.A. (BIT:REC) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of May to €0.63. This makes the dividend yield about the same as the industry average at 2.4%.

See our latest analysis for Recordati Industria Chimica e Farmaceutica

Recordati Industria Chimica e Farmaceutica's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Recordati Industria Chimica e Farmaceutica's dividend was only 63% of earnings, however it was paying out 241% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 38.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 51% by next year, which is in a pretty sustainable range.

Recordati Industria Chimica e Farmaceutica Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was €0.33 in 2014, and the most recent fiscal year payment was €1.20. This means that it has been growing its distributions at 14% 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'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 bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

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 Recordati Industria Chimica e Farmaceutica is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Recordati Industria Chimica e Farmaceutica that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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