Koninklijke Vopak (AMS:VPK) Is Increasing Its Dividend To €1.25

Koninklijke Vopak N.V.'s (AMS:VPK) dividend will be increasing to €1.25 on 28th of April. This makes the dividend yield about the same as the industry average at 4.5%.

Check out our latest analysis for Koninklijke Vopak

Koninklijke Vopak's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. At the time of the last dividend payment, Koninklijke Vopak was paying out a very large proportion of what it was earning and 96% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to rise by 83.4% over the next year. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.

Koninklijke Vopak Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was €0.80 in 2012, and the most recent fiscal year payment was €1.25. This implies that the company grew its distributions at a yearly rate of about 4.6% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 16% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Koninklijke Vopak 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 probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 2 warning signs for Koninklijke Vopak that investors need to be conscious of moving forward. 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.