Recordati Industria Chimica e Farmaceutica's (BIT:REC) Shareholders Will Receive A Bigger Dividend Than Last Year

Recordati Industria Chimica e Farmaceutica S.p.A. (BIT:REC) will increase its dividend from last year's comparable payment on the 21st of May to €0.67. Based on this payment, the dividend yield for the company will be 2.6%, which is fairly typical for the industry.

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Recordati Industria Chimica e Farmaceutica's Future Dividend Projections Appear Well Covered By Earnings

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 earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 44.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Recordati Industria Chimica e Farmaceutica

Recordati Industria Chimica e Farmaceutica Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of €0.37 in 2015 to the most recent total annual payment of €1.27. This implies that the company grew its distributions at a yearly rate of about 13% 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.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Recordati Industria Chimica e Farmaceutica has only grown its earnings per share at 2.3% per annum over the past five years. Recordati Industria Chimica e Farmaceutica is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On Recordati Industria Chimica e Farmaceutica's Dividend

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. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Recordati Industria Chimica e Farmaceutica that investors should know about before committing capital to this stock. 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.