Stalprodukt (WSE:STP) Is Increasing Its Dividend To zł12.00

The board of Stalprodukt S.A. (WSE:STP) has announced that it will be increasing its dividend on the 14th of July to zł12.00. This will take the dividend yield from 3.9% to 3.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for Stalprodukt

Stalprodukt's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Stalprodukt's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 31.8% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 21%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Stalprodukt's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2013, the dividend has gone from zł1.00 to zł12.00. This means that it has been growing its distributions at 32% per annum over that time. Stalprodukt 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Stalprodukt has impressed us by growing EPS at 11% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Stalprodukt's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. Just as an example, we've come across 3 warning signs for Stalprodukt you should be aware of, and 1 of them doesn't sit too well with us. 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.