Koninklijke Philips' (AMS:PHIA) Dividend Will Be €0.85

Koninklijke Philips N.V. (AMS:PHIA) has announced that it will pay a dividend of €0.85 per share on the 8th of June. This makes the dividend yield 2.9%, which will augment investor returns quite nicely.

Check out our latest analysis for Koninklijke Philips

Koninklijke Philips' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 126% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 17%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

The next year is set to see EPS grow by 76.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 70% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was €0.74 in 2012, and the most recent fiscal year payment was €0.85. This means that it has been growing its distributions at 1.5% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Achieve

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. In the last five years, Koninklijke Philips' earnings per share has shrunk at approximately 3.6% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Koninklijke Philips' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

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. For instance, we've picked out 3 warning signs for Koninklijke Philips that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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