Signify (AMS:LIGHT) Is Increasing Its Dividend To €1.50

Signify N.V. (AMS:LIGHT) will increase its dividend from last year's comparable payment on the 5th of June to €1.50. This takes the dividend yield to 5.2%, which shareholders will be pleased with.

See our latest analysis for Signify

Signify's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. But before making this announcement, Signify's earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

The next year is set to see EPS grow by 3.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

Signify's Dividend Has Lacked Consistency

Signify has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of €1.10 in 2017 to the most recent total annual payment of €1.50. This implies that the company grew its distributions at a yearly rate of about 5.3% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Signify has seen EPS rising for the last five years, at 15% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Signify's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Signify's payments are rock solid. While Signify is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Signify has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Signify not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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