Arcadis' (AMS:ARCAD) Upcoming Dividend Will Be Larger Than Last Year's

The board of Arcadis NV (AMS:ARCAD) has announced that it will be paying its dividend of €0.85 on the 16th of May, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

Check out our latest analysis for Arcadis

Arcadis' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last dividend was quite easily covered by Arcadis' earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 138.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of €0.57 in 2014 to the most recent total annual payment of €0.85. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Arcadis has seen EPS rising for the last five years, at 52% per annum. Arcadis is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like Arcadis' Dividend

Overall, a dividend increase is always good, and we think that Arcadis is a strong income stock thanks to its track record and growing earnings. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 1 warning sign for Arcadis 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.