Akzo Nobel (AMS:AKZA) Will Pay A Larger Dividend Than Last Year At €1.54

Akzo Nobel N.V. (AMS:AKZA) will increase its dividend on the 4th of May to €1.54. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.

See our latest analysis for Akzo Nobel

Akzo Nobel's Earnings Easily Cover the Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Akzo Nobel's dividend was only 44% of earnings, however it was paying out 112% of free 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 12.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 39% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was €1.63 in 2012, and the most recent fiscal year payment was €1.98. This means that it has been growing its distributions at 2.0% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Akzo Nobel has impressed us by growing EPS at 14% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Akzo Nobel's Dividend

Overall, we always like to see the dividend being raised, but we don't think Akzo Nobel will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. 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 Akzo Nobel that investors need to be conscious of moving forward. Is Akzo Nobel not quite the opportunity you were looking for? Why not check out our selection of top 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.