Randstad's (AMS:RAND) Dividend Will Be Increased To €2.81

Randstad N.V.'s (AMS:RAND) dividend will be increasing to €2.81 on 4th of October. This makes the dividend yield 9.5%, which is above the industry average.

Check out our latest analysis for Randstad

Randstad Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last dividend, Randstad is earning enough to cover the payment, but the it makes up 117% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 16.4%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 106%, which probably can't continue putting some pressure on the balance sheet.

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. Since 2012, the dividend has gone from €1.25 to €5.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

We Could See Randstad's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Randstad has seen EPS rising for the last five years, at 5.7% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Randstad will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Randstad that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.