FERRO's (WSE:FRO) Dividend Is Being Reduced To PLN3.14

The board of FERRO S.A. (WSE:FRO) has announced it will be reducing its dividend by 0.6% from last year's payment of PLN3.16 on the 10th of October, with shareholders receiving PLN3.14. However, the dividend yield of 8.7% is still a decent boost to shareholder returns.

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FERRO's Future Dividend Projections Appear 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, FERRO's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 297% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Earnings per share could rise by 11.7% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 90%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for FERRO

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. The annual payment during the last 10 years was PLN1.00 in 2015, and the most recent fiscal year payment was PLN3.16. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. FERRO has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

FERRO's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. FERRO has seen EPS rising for the last five years, at 12% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

FERRO'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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for FERRO that you should be aware of before investing. Is FERRO 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.