Budimex (WSE:BDX) Has Announced That Its Dividend Will Be Reduced To PLN25.43

Budimex SA's (WSE:BDX) dividend is being reduced by 29% to PLN25.43 per share on 13th of June, in comparison to last year's comparable payment of PLN35.69. The dividend yield of 5.7% is still a nice boost to shareholder returns, despite the cut.

We've discovered 1 warning sign about Budimex. View them for free.

Budimex's Future Dividend Projections Appear 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 124% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share is forecast to rise by 48.8% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Check out our latest analysis for Budimex

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was PLN11.85, compared to the most recent full-year payment of PLN35.69. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Budimex has been growing its earnings per share at 22% a year over the past five years. While EPS is growing rapidly, Budimex paid out a very high 124% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Budimex's Dividend Doesn't Look Sustainable

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 general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 1 warning sign for Budimex that investors should take into consideration. 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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