Tire Company Debica (WSE:DBC) Has Announced That Its Dividend Will Be Reduced To zł2.32

Tire Company Debica S.A. (WSE:DBC) is reducing its dividend to zł2.32 on the 20th of Decemberwhich is 38% less than last year. However, the dividend yield of 3.5% is still a decent boost to shareholder returns.

View our latest analysis for Tire Company Debica

Tire Company Debica's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 96% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 27%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Unless the company can turn things around, EPS could fall by 1.5% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 64%, which is an improvement from where it is currently.

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 first annual payment was zł2.96, compared to the most recent full-year payment of zł3.72. This means that it has been growing its distributions at 2.3% 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.

The Dividend's Growth Prospects Are Limited

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. Tire Company Debica hasn't seen much change in its earnings per share over the last five years.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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. We don't think Tire Company Debica is a great stock to add to your portfolio if income is your focus.

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. Case in point: We've spotted 3 warning signs for Tire Company Debica (of which 1 can't be ignored!) you should know about. Is Tire Company Debica 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.