Randstad (AMS:RAND) Is Paying Out A Larger Dividend Than Last Year

Randstad N.V. (AMS:RAND) will increase its dividend on the 4th of October to €2.81. This will take the annual payment from 9.5% to 9.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Randstad

Randstad Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made up 100% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next 12 months is set to see EPS grow by 9.2%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 105% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was €1.25, compared to the most recent full-year payment of €5.00. This means that it has been growing its distributions at 15% per annum over that time. Randstad has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Randstad's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Randstad has been growing its earnings per share at 6.7% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. 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. 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 Randstad 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.