Tire Company Debica's (WSE:DBC) Dividend Is Being Reduced To PLN2.32

Tire Company Debica S.A. (WSE:DBC) has announced that on 20th of December, it will be paying a dividend ofPLN2.32, which a reduction from last year's comparable dividend. The dividend yield of 3.7% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Tire Company Debica

Tire Company Debica's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Tire Company Debica was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 6.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 60%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was PLN2.96, compared to the most recent full-year payment of PLN2.32. Doing the maths, this is a decline of about 2.4% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Is Doubtful

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. Tire Company Debica has seen earnings per share falling at 6.4% per year over the last five years. 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.

Our Thoughts On Tire Company Debica's Dividend

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. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Tire Company Debica is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Tire Company Debica has 3 warning signs (and 1 which can't be ignored) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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