Benefit Systems' (WSE:BFT) Shareholders Will Receive A Bigger Dividend Than Last Year

Benefit Systems S.A. (WSE:BFT) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of November to PLN135.00. This makes the dividend yield 5.1%, which is above the industry average.

Check out our latest analysis for Benefit Systems

Benefit Systems' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Benefit Systems was paying out 83% of earnings, but a comparatively small 55% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 22.5%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 83% which is a bit high but can definitely be sustainable.

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 PLN7.50 in 2014, and the most recent fiscal year payment was PLN135.00. This implies that the company grew its distributions at a yearly rate of about 34% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Benefit Systems' Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Benefit Systems has seen EPS rising for the last five years, at 33% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Benefit Systems is not retaining those earnings to reinvest in growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Benefit Systems' payments are rock solid. 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. This company is not in the top tier of income providing stocks.

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 Benefit Systems that you should be aware of before investing. 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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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.